Despite the festival season, demand for gold has not spurred among Indian buyers this time. The subdued consumer demand is apparently due to the government's additional levies, that is keeping the yellow metal out of reach for most buyers.
"The government is aware of the situation and a working group had been formed to review the existing regulatory policies related to gold," said Dr Saurabh Garg, joint secretary (investments), department of economic affairs, finance ministry.
The working group will consist of secretaries of other finance ministry departments like revenue and financial services as well. Economists and experts representing institutions like IIM-Ahmedabad, National Institute of Public Finance and Policy (NIPFP) would also constitute the working group.
"The focus of the group will remain multifarious. Primarily, it would be to see if a multitude of taxes like higher import duty (10 per cent), entry tax, octroi, excise duty and VAT have impacted gold demand. If these had made gold out of bounds for the poor. These would be some of the issues for deliberations in the working group,"said Arvind Sahay, head of India Gold Policy Centre (IGPC) of IIM-Ahmedabad, who had been selected by the government as a member of the gold review panel.
''The increase in customs duty to 10 per cent is one of the big issues,'' said Sahay. The higher customs duty was imposed in the year 2013 when the government was keen to address the growing gap in its current account, caused by higher gold imports. India imports close to 99 per cent of the gold it consumes while a mere one per cent gold consumption is met from mining of the yellow metal domestically.
Addressing a senior economists' roundtable, jointly organised by the IGPC and NIPFP, on Monday, Saurabh Garg from the finance ministry, said that the working group would also seek to address the issue that is higher taxation has probably resulted in a spike in smuggling of gold into the country. He said the government was committed to bringing more transparency into the gold industry and be able to keep record of every gold transactions made in the country.
With FTA agreements in place to import gold from ASEAN countries at a concessional import duty of 0.96 per cent, the experts felt, that these concession agreements became a threat for the gold sector, as it was likely being misused by getting gold articles melted and converted into bullion bars by unscrupulous players.
With the roll out of the uniform indirect tax regime, GST, that is proposed to be between 4-6 per cent and customs duty at 10 per cent, the consumer will need to pay taxes to the extent of 14 to 16 per cent on their gold purchase. A number of gold industry associations, including bullion banks, bullion traders, gold retailers are lobbying for GST 4 to 5 per cent from the government.
"We will have to keep in mind always the price differential between domestic and imported gold after GST kicks in. If indeed, prices remain at such high tax levels, it would affect final price of gold for consumers, and it could also have a further cascading impact on the industry and consumer behaviour," said Rathin Roy, director, NIPFP.
Recently, a consumer research across 11 largest gold consuming states in India with a sample size of 1,150 gold buyers suggested that family functions and festivals are the main drivers of gold purchase. Strong sentiments are associated by Indians with jewellery in 70 per cent of the households sampled. More than 70 per cent of households preferred to keep more than half their jewellery at home.
And finally 90 per cent of the sample had not heard of the government's Gold Monetisation Scheme that allows gold owners to deposit their gold with the government and earn a steady flow of interest on the deposit. The scheme had found few takers and the gold policy review group would also look to make the scheme more invester-friendly.