Inflation, not duty, to cut gold imports 10%

A A

fe Bureau: New Delhi, Jan 23 2013, 01:06 IST

The government’s decision to increase the customs duty on gold from 4% to 6% is expected to result in a slight moderation in investment demand, estimated at roughly 30% of the imports in FY12 of 891 tonnes, for the precious metal. While some part of the investment demand could have been affected by the previous increase in customs duty to 4% from 2%, the reduction in investment demand for gold could be 70-100 tonnes by the end of FY14, experts say.

Following the hike in the import duty from 2% to 4%, imports volumes contracted by around 25% year-on-year in the first three quarters of 2012 and are tipped to fall to 855 tonnes in FY13.

However, gold imports are unlikely to come off meaningfully since consumption demand at around 65% of the total demand, as also investment demand, have already moderated close to their averages. One reason for this is the lack of attractive investment opportunities.

A study by Nomura Securities shows that when import duties rose from 1% in January 2012 to 4% in April 2012, imports dropped by about 30%. However, while import duties remained at the 4% level subsequently, imports rose. Apart from the fact that gold remains the best investment option — according to RBI data between January 2008 and May 2012, it gave cumulative returns of over 270% versus around 80% for the Nifty — imports of the metal are directly correlated to inflationary expectations.

With inflation likely to ease, this puts a natural ceiling to gold imports. Although the government is focused on the sharp increase in gold imports, the actual imports between FY10 and FY13 (estimated) would have risen 6.9% in volume terms while in value terms the increase is estimated at nearly 68%.

Ads by Google

Multi Page Format

BofA-ML sees diesel price hike adding 120 bps to inflation BofAML sees diesel price hike adding 120 bps to inflationRetail inflation for farm workers up at 11.33%Japan finmin Aso hopes BOJ sets 2% inflation target

Previous Story PSB chiefs may get fixed 3-yr term from this April Next Story It’s back to B-school for top execs at HCL Tech

Reader's Comments (2)| Post a Comment

Fe Comment

Fintotal | 23-Jan-2013Reply | Forward

The fundamental reasons for buying gold jewelry are rooted in Indian culture especially during weddings. Lot of alteration has happened to our traditions but gold purchase on the occasion of wedding has not changed much. Though the newer generation is not too fond of wearing or flaunting gold jewelry, the demand for gold jewelry has not gone down. We end up demanding 950 tonnes of gold every year.

Fe Comment

Anand R | 23-Jan-2013Reply | Forward

''''1.Will it really increase smuggling ?? if six percent is the gain - ts it risk free - the gains only after completing 17 odd consignments- till then the smuggler stands at capital risk. The profits are only after this ?? With the present vigilance and if the customs are serious - even one consignment of every seventeen is enough for the smuggler to go out of business. 2. Increase of duty is going to be passed on to the consumer. The industry is shedding crocodile tears for consumers. The same industry initially protested when gold was Rs 600/ gram with many sob stories of indian poor unable to get married with the price rise. Irony is the industry retailers went on opening chain of retail outlets with every price rise and stood to gain as they have rarely compromised on their profit margins. Gold price in 2005 was Rs600 / gram and now it is above Rs3000/ gram. Needless to mention that with the samel profit percentage the retailers stood to gain and the artisans were always X rs for every gram they worked and not in percentages. The general public money always got robbed with less purity metal which is the one reason the industry strongly objected to mandatory hall marking. The difference between the International price and to the Indian Public is always more than ten pecent even with zero duty. Hence the industry once again is misrepresenting. The psyche of india public have been completely exploited by the retailers with promoting gold as the only alternative and store of wealth with heavy jewellery 916 items .Instead if the country opens for light weight jewellery then this alone will bring down the consumption . The retailers wont be interested to sell light weight jewellery because their profits will correspondingly fall down. The Indian consumers are always taken for a jolly ride both by the international traders wth increase in prices and local traders with less content of gold than for what they are charged. Last but not the least - the industry is known for evading taxes. Go across to any outlet be it large or small- they will be too happy to give you jewellery without bill. Let the jewellers not pretend as if they are good tax payers. Once again let not the industyr or the retailer shed crocodile tears for consumers and instead let them reduce their profits by the excise duty component which is only six percent while the present profit margin of any retailer is above 12 percent in cash sales. God Save the Public from these greedy jewellers''''