India’s Gold Demand Still Low After Demonetization
(Kitco News) - Gold demand in India is still recovering from the effects of demonetization of all 500 and 1,000 rupee banknotes last year, according to local bullion traders and jewelers.
Gold buying in India dropped by 25% since Modi government introduced demonetization last November, the country’s Economic Times reported, citing Nitin Khandelwal, chairman of All India Gem & Jewellery Trade Federation.
“In the initial months after demonetization, business had dropped by almost 75%. Gradually, with remonetization, demand has picked up. However, the overall demand continues to be 25% less than last year,“ Khandelwal said.
This is significant, considering India is the second largest consumer of gold after China.
Also, it is still up for debate how successful the demonetization program was in stopping illicit trade.
“Smuggling has come down significantly since demonetization was announced due to lower money floating in the market and more checks,” said Surendra Mehta, national secretary at India Bullion & Jewellery Association (IBJA). But, there is still activity on the black market at B2C level.
Gold demand in India tumbled 22% in 2016 down to 674 tonnes from 863 tonnes reported in 2015, according to the World Gold Council (WGC).
In the short-term, the WGC estimates to see gold demand staying around 650 - 750 tonnes in 2017 and recovering more next year.
Gold demand has largely been hit by the numerous laws passed by the Indian government in the last couple of years that might have discouraged some consumers from purchasing gold, according to managing director at World Gold Council India Somasundaram PR.
One of the most recent measures has been the introduction of 3% GST tax that became effective on July 1 and aims to help with traceability of transactions.
In another move, India’s government announced a ban on all gold product exports that are above 22-carat purity level in an attempt to close a tax loophole. The new rules impact items such as jewelry, coins and medals.
The latest gold demand data from India showed that imports of the yellow metal have dropped 31% in October, an unnamed source told Bloomberg.
Imports were at 66.8 tonnes in October, down from 96.7 tonnes, a person familiar with the data said. October’s figure leaves overall purchases during the first ten months at 777.1 tonnes.