Gold demand in the country is likely to be muted for the remaining part of the year with the sector taking time to adjust to the new tax regime, officials of the World Gold Council (WGC) said here on Tuesday. While the implementation of the Goods and Services Tax (GST) is expected to bring more transparency and increase higher consumption from the organised sector, the industry is likely to take 12-18 months to adjust to the new system, Somasundaram PR, managing director of WGC’s Indian operations said. The council estimates the annual gold consumption for the year to be around 650-750 tonnes, which is more or less similar to 674 tonnes of 2016, despite a good monsoon and robust economy.
Demand for the commodity is seen higher by 15 % year-on-year in the first quarter of the year at 123 tonnes.
“Demand is definitely looking up from the low base in 2016, but not up to the normative demand, GST might pull back demand even if the rates are lower because it takes time to adjust,” Somasundaram added. The normative demand for gold for the country is seen at 800-900 tonnes per annum. Gold demand fell to a seven year low in 2016 due to various factors like demonetisation, income disclosure schemes and strikes by the retail jewellers across the nation. In 2015, the total demand for gold stood at 863 tonnes, WGC sources said.
Somasundaram said that lower GST on gold from the existing taxes could bring more transparency into the system and help the organised sector which serves 30% of the total gold demand of the country. It is estimated that there are 3,85,000-4, 10,000 jewellers or retail outlets in the country. In the last ten years, consumption of gold from the organised sector has increased from 5% to 30%, he added. WGC reports that a 1 % increase in the income of the population translates into 2.5% increase in gold demand, while a 1% increase in price only leads to a 0.5 % decline in consumption.
Besides, lower gold imports could help Asia’s third-biggest economy in containing a swelling trade deficit that hit its highest level in 29 months in April. Imports of unrefined gold will also fall sharply in the second half as new rules allow only refineries accredited by the Bureau of Indian Standards (BIS) to import gold from June 1, said James Jose, secretary association of gold refineries and mints. “It will take at least six months for refiners to secure BIS accreditation. Many small refiners may fail to get accreditation,” he said. India imported 142 tonnes of unrefined gold in 2016, according to data compiled by the World Gold Council.