Falling gold import trims trade deficit, while unofficial imports play spoilsport
For gold buyers, there has never been such a time in the recent years. Shops are offering attractive discounts—up to 4 per cent—even though gold price is rising abroad. But people are still not very keen on buying.
This intriguing trend has come about because dealers have plentiful stockpile. They want inventory clearance before they can import.
The bullion market had earlier witnessed a steady rise in imports, forcing Commerce and Trade Ministry’s intervention. Import has since been falling—for the past six months consistently—bringing good cheer to the exchequer. But the 10 per cent import duty on gold entices smugglers to take risks.
In the first four months of the fiscal year (April-July), the import of gold tumbled by 76 per cent to touch 60 tonnes. In this period, the Indian market pushed trade underground to import 80 tonnes. A 42-day strike from March 2, after Finance Minister Arun Jaitley introduced 1 per cent excise duty, worsened the situation. The import fell by 80 per cent in March. In April, it fell by 67.33 per cent to 19.6 tonnes. The trend is still continuing.
The largest importer of gold imported for jewellery industry. 1,050 tonnes of gold imported in 2014-15. 950 tonnes imported in 2015-16.
Why have imports been falling?
One reason is fall in demand. Another is that high customs duty instigates smuggling. Because of rising prices, 250 tonnes of scrap gold reaches the market.
Hallmarking of gold ornaments
Gold purity has been guaranteed by hallmarking guidelines issued by the Indian government in 2000. However, the standard has been put in abeyance till adequate hallmarking centres were established. Now with most shops establishing brand identity, the government may take action against shops selling non-hallmarked jewellery. Mandatory hallmarking of ornament would bring cheer to Indian gold market as most gold is sold as ornaments.
Smuggling to sidestep taxes
At present, almost 15 per cent of gold sold in India is smuggled and the trade may go on unabated.
What makes gold smuggling so luring? Gold attracts 10 per cent import tax. In addition to that, states impose varied VAT rates—ranging from 1 to 5 per cent. Adding cess and stamp duty to these, importing through official channel is less attractive. When it is crafted into jewellery, it attracts another 1 per cent excise duty, which makes smuggling a thriving business.
Small gold refineries, mostly based in Uttarakhand, import gold dore –unrefined gold—that attracts 8.5 per cent import duty only.
Dealers are calling for abolition of 10 per cent import tax when GST takes shape. Assuming the GST standard rate to be 18 per cent on gold, it works out to 28 per cent for bullion import. Given the circumstances, trade underground can only go upwards.