India’s gold traders stocked up anticipating a higher Goods and Services Tax (GST), pushing up imports of the precious metal and widening the country’s trade deficit to a 30-month high in May.
There were fears that the GST rate on gold will be 5 percent, twice the existing level, Kumar Jain, Vice President of the Mumbai Jewellers Association and owner of Umedmal Tilokchand Zaveri, told BloombergQuint. As a result, bullion traders resorted to stocking, he said. The yellow metal will be taxed at 3 percent under GST.
Gold is one of the major contributors to the country’s import bill, after oil. India, along with China, is among the top two consumers and the demand remains high as it is widely gifted at weddings and during festivals. The government has come up with multiple monetising schemes to recycle gold within the country, but hasn’t had much luck.
India’s gold imports in May rose more than threefold over a year ago to nearly $5 billion, according to data by the Ministry of Commerce. Barring April, the inbound shipments grew every month since December after a cash crunch triggered by last November’s demonetisation eased.
A pent-up demand after the note ban also emerged as cash in circulation rose, said PR Somasundaram, Managing Director, India, World Gold Council. Ongoing wedding season added to the demand, besides the pre-GST stocking, he said.
The average price of MCX spot gold during the month was Rs 28,839 per 10 grams against more than Rs 29,500 over the last 12 months.
The price was attractive in May, due to which consumers resorted to buyingRajesh Chouhan, Director, SPN Gold Pvt. Ltd
Also, stricter surveillance against smuggling at ports meant more gold came in through the official channel, he said.
Abeek Barua, Chief Economist at HDFC Bank Ltd., said that besides the GST worries, the other reason for bunching up of core demand for gold was expected global uncertainty. Spot gold prices in the global markets rose from less than $1,130 an ounce in December-end to nearly $1,300 in early June before retreating to a little over $1,253 on Friday, according to Bloomberg.
A US missile strike in Syria led to a standoff with Russia even as President Donald Trump’s pledge to solve the North Korean problem only added to uncertainty in April, Bloomberg reported quoting precious metal traders. The controversy around removal of FBI director James Comey by Trump also triggered a bout of buying in the safe-haven bet in the global markets, sending prices higher.
Shubhada Rao, Chief Economist at Yes Bank Ltd., sees the demand returning to normal in India from June. Imports this year will be nearly at the same level as 2016 in the range of 650-750 tonnes, according to the World Gold Council.
(This article was originally published on BloombergQuint.)
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