By Aparajita Gupta
New Delhi: With Goods and Services Tax (GST), demonetization and Anti-Money Laundering (AML) regulations coming into effect, gold will not glitter much this Diwali, feels Somasundaram P.R., Managing Director – India of the World Gold Council (WGC).
“Diwali this time has its own challenges. But I am optimistic now, as everything has settled down. It is the AML part which is probably hurting people at the moment. Wedding purchases will be more affected than Dhanteras buying,” Somasundaram told IANS in an interview here.
“I still think there will be a lot of issues with the authorities, but not so much at the consumer end. The organized sector has picked up very well. Demonetisation and AML, though, are definitely hurting,” he added.
Somasundaram said last Diwali came before demonetization and after three years India had witnessed good monsoons. So “there was really good demand”.
The government has brought the gems and jewelry industry under the purview of Prevention of Money Laundering Act, which in turn has increased compliance requirements. The new indirect tax regime (GST) was rolled out across the country on July 1, in which the yellow metal came in the three percent bracket.
“First half (January-June) imports were 532 tonnes, while demand was still 298 tonnes. Actually, pre-GST people imported as much as they could. But that didn’t get converted into demand,” Somasundaram said.
At present, the gold price is hovering around Rs 29,000 per 10 grams for 22 karats.
“Our estimation is it will take 12-18 months for GST to stabilize in this industry as 70 percent of it is unorganized.”
He, however, said demand through the black channels have gone down.
“We see consumer behavior changing in response to GST. Our econometric analysis spanning 26 years of data illustrates that higher taxes act as a headwind to gold demand. But the tax should also change the industry to the benefit of the consumer,” WGC said in a report earlier.
Demand for gold in India for the second quarter (April-June) 2017 was at 167.4 tonnes, up by 37 percent compared to the overall Q2 demand of 122.1 tonnes for 2016, WGC data showed recently.
The total jewelry demand in India for Q2 2017 was up by 41 percent at 126.7 tonnes as compared to Q2 2016 (89.8 tonnes). The value of jewelry demand was Rs 33,000 crore, up by 36 percent from Q2 2016 (Rs 24,350 crore).
The WGC has put India’s yellow metal demand for this calendar year between 650 tonnes and 750 tonnes.
Reports said the import bill for gold in value terms, according to the Ministry of Commerce, was $23 billion (Rs 1.5 lakh crore) in 2016.
Talking about the government’s demonetization drive and its impact on the sector, Somasundaram said: “The level of activities are definitely much better now than when it was introduced. Our view is, demand will pick up (during Diwali), but whether it will really pick up to potential is something which is difficult to say.”
India’s gold demand for 2016 fell sharply by 21 percent to 676 tonnes from 857 tonnes in 2015.