Budget 2018: Indian gold demand will pick up in 2018, and any reduction in the high customs duty on the precious metal will boost it further, says Ahammed MP, chairman of Malabar Gold & Diamonds, one of the largest jewellers in India. In an interview to FE’s Banikinkar Pattanayak, he said his company would open 50 more outlets this year in India and abroad.

Why do you think the government should remove or cut the 10% basic customs duty on gold, apart from the usual argument that such a move would discourage smuggling?

The high import duty on gold leads to a wide divergence between international and domestic prices. Besides, it has a direct bearing on the illegal inflow of gold. High rates lead to illegal shipments of the yellow metal without paying duty and sale of the commodity in the domestic black market at a hefty discount. The availability of illegal gold helps the black marketers to put the organised gold retailers at a price disadvantage, leading to compressed margins for the organised gold trade. A reduction from the existing level of 10% to 5% will be the ideal budget gift for the industry. This will not only ensure a level playing field for organised trade but also increase the revenue of the government by plugging tax leakages. A lower import duty will naturally make illegal shipments of gold less attractive and hence more players will shift to organised trade.

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At a time when gold prices are relatively subdued and demand is off its peak, why are you still expanding aggressively, both in India and abroad?

The world over, gold is accepted as a currency. I will call it as hard currency which can be encashed at any point of time. Then it is equivalent to paper currency. Governments and corporates buy gold as investment. Individuals buy mostly for gifting on particular occasions. India being a vast country, there is a diversity in cultures and a multiethnic demographic profile with people from different regions celebrating different festivals. People buy gold and ornaments during the festival time. A similar characteristic applies to Middle East and other International markets. There may be a change in tastes, preferences and designs but demand remains the constant factor.

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Do you expect a pick-up in gold demand in 2018 in India? If yes, why so?

We expect a definite uptick in gold demand in India in 2018. Indians have a propensity for buying gold which has majorly reflected in sales volumes in the Indian markets. Demand for the yellow metal continues to traverse a higher demand trajectory in India. A lower duty structure and a firm control on smuggling are definite triggers for gold demand to remain on an upswing.

How many outlets do you plan to add in 2018 in India and abroad and what sort of investments are you looking at?

As part of our global expansion plans, we plan to open another 50 showrooms in this year in different formats across various countries. Average investment per store is around Rs 25 crore, which may differ from market to market. We will be expanding into new markets, marking our presence in countries such as the US, Sri Lanka, Brunei, and Bangladesh. The upcoming showrooms of the group are at Mannarkad & Mall of Travancore (Kerala), Abbasiya (Kuwait), Himayat Nagar & Kondapur (Hyderabad), Noida (UP), South Extension (Delhi), Vashi (Navi Mumbai), Ludhiana (Punjab), Surat & Rajkot (Gujarat) and Karim Nagar (Telangana). In India, the company currently operates manufacturing units in Kerala, Tamil Nadu, Karnataka, Telengana, Maharashtra, Bengal and Saudi Arabia, Qatar and UAE overseas. We presently operate through 209 outlets with 92 showrooms in India and 117 showrooms outside India.

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Have demonetisation and GST accelerated a shift in consumers from the unorganised to the organised market market?

The double whammy of demonetisation and GST has not been along expected lines. The unorganised gold sector still caters to a large percentage of consumers. The unorganised sector largely depends on smuggled gold consignments and since they remain out of the tax net, they do not contribute anything to the national exchequer. Government should take necessary steps to control smuggling and introduce tracking system.

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How will the recent cut in the GST rate for diamonds help the industry?

The deduction is only for the loose stones. When ornaments are embellished with the stones, VAT will remain as 3%. Hence the reduction may help the manufacturing units to attain scale of economies but the end customer will not benefit from the move.