Significant growth in India’s gold refining industry led by informal sector – report

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A gold jewellery shop in Mumbai's Jhaveri Bazaar. Photo/IAC

India’s gold refining industry has seen whopping growth in recent years with capacity increasing by an whopping 500% between 2013 and 2021, the World Gold Council (WGC) said in a report, adding that the informal sector perhaps accounted for as much as an additional 300-500t.

According to the report, advantageous custom duty on gold doré fuelled the industry’s growth while it lasted but the introduction of the Goods and Services Tax (GST), as well as the impact of the pandemic and other macro-economic factors affected refining profitability, especially among smaller players.

“Even today, the remaining small-scale refineries face stiff competition for a limited amount of imported gold doré,” the report added.

The country ranks fourth in global gold recycling; over the past five years 11% of India’s gold supply has come from ‘old gold’; driven by movements in the gold price, future gold price expectations and the wider economic outlook.

However, gold recycling faces headwinds, the report warned, adding that anticipated growth in the Indian economy could mean higher incomes and less distress selling. “And while fashion conscious consumers tend to keep their gold jewellery for shorter periods of time and are more confident of gold’s value when they sell, refineries cannot always make use of this gold,” the report said.

Collection centres for recycled gold – set up by some of the larger refineries – are few and far between, and refineries are reluctant to buy direct from jewellers who deal largely in cash as source verification is impossible, the report pointed out, adding that until these issues are resolved it seems that a sizeable percentage of India’s gold recycling industry will remain unorganised.

Looking ahead

According to the WGC, India’s demand for gold shows no sign of abating and while demand outweighs supply, recycling will continue to be key. The refining industry in India, currently stabilising after a period of change, is looking to the future.

Some refineries choose to sell direct to investors and although only 5% of transactions are currently made digitally, doubtless this will increase as investors recognise the price advantage of buying direct, the report said, adding that the raft of government guidelines, standards and processes will help refineries improve the traceability of recycled gold and become less dependent on gold doré imports, as well as limit the unorganised collection of scrap gold and increase efficiencies in recycling.

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