The high import duty on gold will bring down volume demand for the precious metal by 10-15% and push out old gold into the market as Indian households will leverage the high price, helping address the country’s current account deficit. It is estimated that around 25,000 tonnes of idle gold is locked up in Indian households.
“We are expecting a lot of old gold to enter the market. Volume sales of gold will come down because of the high price,” said B Govindan, chairman of Bhima Jewellers.
“Smuggling of gold is expected to rise and more people will take gold loan against jewellery to offset inflation,” said Surendra Mehta, chairman of India Bullion & Jewellers Association, Earlier, during the higher duty regime, nearly 100-120 tonnes of gold used to enter the country through the grey route, he added.
India already holds an enormous quantum of gold in their households, much of it being idle. If even a fraction of that is brought back into the circulation through formal exchange and recycling, pressure on fresh import eases
Industry executives said promoting sales of lower carat jewellery like 14K and 9K can reduce imports by 20-30%, and discouraging investments in gold bars and coins can reduce imports by another 20% -30%. India annually imports 750-800 tonnes of gold to meet its demand. Revamping the Gold Monetisation Scheme can also help the government to tap 25,000 tonnes of grandfather stock.
Varghese Alukkas, chairman of Jos Alukkas, which has presence in five southern states, said, “Following this duty hike, there will be a rush among customers to sell old gold jewellery for cash.”
Incidentally, nearly 50 per cent of sales of big jewellery retailers are now through old gold exchanges.
