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Soumik Dey
Soumik Dey

GOLD SOUK WOES

Festive demand of gold dampened over buying scare

gold-gst-rate-reuters Representative image | Reuters

Pre-diwali gold buying on a lull as govt introduces KYC for all gold purchases

ndia, the world's number two gold market after China, is witnessing a 50 per cent dip in gold consumption this festive season (Aug-Oct). The reason is attributed to the tightening of gold buying norms recently by the government.

Furthermore, gold imports this year went up by 300 percent (Apr-Aug), following the government's demonetisation move. Thanks to the duty-free gold import allowed from South Korea this year, as part of a special agreement.

Realising that higher gold imports augur negatively, for maintaining dollar reserves and spend in foreign exchange (Current Account Deficit), the government has now suspended gold imports from all South Asian countries.

The reason for which is figured that to be, these countries are not gold producers. From August 23, government brought gold purchase under the money laundering scanner. Know-Your-Customer (KYC) norms were made mandatory for all gold purchase above Rs 50,000 and GST at 5 percent was levied on all gold ornament purchases.

"These steps came in a bit too late and just before the festive seasons, when we typically expect gold demand to quadruple. As a result, now bullion merchants are sitting on their procured gold stocks till demand revives among buyers," said Somasundaram P R, managing director, World Gold Council.

The government, however, is also aware of the consequences of stopping gold imports from South Asian nations. No wonder that Commerce Minister, Suresh Prabhu, is concerned about the matter.

"Our trade deficit has widened due to gold imports, but that does not mean we can have a blanket ban on gold imports. Comprehensive Economic Partnership Agreement (CEPA) we have since last 10 years need to be reworked," Prabhu said, without mentioning South Korea and the widening trade deficit caused due to this agreement.

He would begin his Korean visit on Sept 23 and is expected to take steps in this direction on his return. Owing to CEPA, gold imports from South Korea were exempt from 10 percent customs duty and also 3.5 per cent countervailing duty. Only IGST of 3 per cent were payable on these imports.

To revive gold demand, the industry feels that the government must increase the limit of gold purchase for those without KYC.

"It (KYC norms) is scaring customers. Footfalls at jewellery stores are very few. This will not change unless the limit for gold purchase without KYC is increased," said Kumar Jain, president of the Bullion Merchants Association in Mumbai.

The gold industry, however, is upbeat on other triggers which can improve the demand of the yellow metal as a safe investment. "With the escalation of tensions between US and North Korea, we are witnessing a spike in gold demand and prices globally," said Somasundaram.

Revival in the domestic demand for gold jewellery, though muted now, is expected to pick up with the marriage season starting shortly, he added.



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Topics : #Gold | #Gold price | #business

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