Thursday, March 27, 2014

Loosening import duties on gold may spike demand
As the general election in India nears to close, Indian jewelers have crossed their fingers anticipating that the new government may take steps in relaxing the import rules imposed over the year. With the wedding and festive seasons at full swing in India gold demand for jewelry may spike in the coming days. Jewelers in India are expecting axing of 10% import duty so that they can supply enough jewelry this season. Due to the stringent import regulations in 2013, Indian jewelers had to face immense supply crunch of stocks which made it difficult to satisfy the rising demand.

Commenting on the expectation of the rebounding of India’s Gold import, Mr. T.S Kalyanaraman, the chairman of a South India-based jewelry – the Kalyan Jewelers expressed his belief that the new Government may relax the import curbs very soon so that the jewelry industry would recover. While addressing the media, Kalyanaraman said that a recovery of gold shipments in India from mid-year will definitely help in uplifting overseas purchases of gold in 2014. He adds that they expect to surpass the gold import of 2013 that stood at 825 metric tons by this year. Since jewelers are struggling to meet raw material supply, the regulations on gold bullion import are expected to be taken out this year, which may further spur smuggling.

In 2013, owing to the ballooning current account deficit of the country, India had increased the import tax on gold thrice starting from 2% to reach the record high of 10%. This stringent rule fell as a wind fall on Indian jewelers as the shipment declined while dragging down the CAD to controllable levels. It created shortage of stocks in India which rendered many jewelers and artisans jobless. The gold import is expected to continue its downward movement until June, after which it is expected to rebound by the end of June to reach the same figures of 2013.

According to the predictions by Societe General SA and Goldman Sachs Inc., gold is likely to fall below $1,000 an ounce amid the expectation of rebounding. According to Kalyanaraman, the smuggled gold demand in India may further increase by 40% to 50 % if the import duty is not eased and demand for jewelry continue to surge in India. He added that the demand for gold has triggered several small jewelers in India to sell their stocks without bills or showing the official figures. 

Courtesy: Resource Investor