By K Raveendran
Nirmala Sitharaman’s budget has played truant with the gold trade, which is in the throes of a crisis for what the finance minister has not done rather than any act of commission in her last full-fledged budget of her current tenure.
The gold trade had been looking for a cut in the import duty for the metal in the budget, with the result that jewellers and traders hardly bought any gold in January, particularly in the second half. But there was no duty reduction in the budget.
As a result, India’s January gold imports plunged 76 per cent from a year earlier to a 32-month low. At the same time, domestic prices rallied to record highs. The country imported 11 tonnes of gold in January, compared with 45 tonnes a year earlier. In value terms, January imports dropped to $697 million from $2.38 billion a year earlier. The lower imports have, however, had a salutary effect on the country’s trade deficit, just as it lent support to the ailing rupee.
Further, local gold futures jumped to a record high of Rs 57,270 rupees per 10 grams in January, stifling retail demand, which had been expected to improve amid the ongoing wedding season.
The trade is now waiting for a reversal of the price trend, which is beginning to happen. Local gold prices have fallen nearly 5 per cent from the all-time high and this has helped attract retail consumer back, and the trade is expecting a pickup in purchases.
It was widely believed that the Centre would reduce the import duty on gold so as to discourage smuggling, which has increased to alarming proportions in recent times after the import duty was hiked to 15 percent from 10.75 percent in July last year in a bid to contain the current account deficit. Although the basic duty was only 12.5 percent, the effective rate was 15 percent in view of the additional 2.5 percent duty on account of the agriculture infrastructure development cess.
But ahead of this year’s budget, the commerce ministry had sought a reduction in the duty with a view to pushing exports and manufacturing of the gems and jewellery. The ministry also wanted the duty on certain other products to be tweaked to boost manufacturing and exports. In fact, the Gem & Jewellery Export Promotion Council wanted the import duty on gold, silver and platinum to be reduced to 4 percent.
But Nirmala Sitharaman’s budget did not listen to any of the suggestions and on the contrary increased the duty on silver, while sparing other precious metals. The demand for duty cut fell on deaf ears.
India had led the global recovery in gold sales with 17 percent year-on-year growth with a demand of 146 tonnes in the third quarter of 2022. According to World Gold Council, global annual gold demand jumped 18 percent to 4,741t, almost on a par with 2011, which was marked by a period of exceptional investment demand. The strong full-year total was aided by record fourth quarter demand of 1,337 tonnes.
The year saw a record annual average gold price of US$1,800 per ounce, closing the year with a marginal price increase despite facing notable headwinds from the strong US dollar and rising global interest rates. Although the fourth quarter average price was slightly weaker, a sharp November rally was followed by continued recovery throughout the closing weeks of the year.
Brisk retail investment lifted bar and coin demand to a nine-year high. Strong growth in Europe, Turkey and the Middle East offset a sharp slowdown in China, where demand was affected throughout the year by Covid-related factors. Indian gold demand remained robust compared with longer-term pre-pandemic levels. Despite a fairly soft start to the year, Indian consumer demand recovered and only just fell shy of the strong levels of demand seen during 2021. Continued recovery from Covid boosted yearly comparisons, although the sharp local price rally choked off demand in the closing weeks of December.
Overall, total gold supply halted two years of successive declines in 2022, lifted by modest gains in all segments. Full-year mine production grew 1 percent but failed to match its 2018 peak. Annual recycling supply made only marginal gains, despite strong local currency price rises in many markets, according to World Gold Council. (IPA Service)
