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India Gold Demand To Fall 2.4% Due to Hike in Import Duty

The World Gold Council predicts drop in demand for gold in India, on account of recent hike in gold import duty. If the hike in duty is made permanent, it could impact the long-term demand for gold in the country.

According to the World Gold Council, the hike in import duty by 2.5% from 10% to 12.5%, as proposed in the Union Budget, is likely to reduce gold demand in India by approximately 2.4% in 2019. The decision is a dampener for the entire gold industry in the country, it says. Furthermore, if the duty were to become permanent, it could impact long-term demand by less than 1% per year.

As per industry experts, the decision to raise import duty on gold will make gold and gold jewellery more expensive in the domestic market. In fact, the announcement by the Finance Minister came as a surprise, as the entire industry participants were expecting cut in import duty, so as to stem the flow of smuggled gold into the country. However, the government noted that the decision was part of its stated policy to curb imports of non-essential items.

The latest reports indicate that retail gold buying has seen notable decline in India, since the hike in import duty. Although supplies are limited, the markets are said to be in discount due to weak demand. The yellow metal is being sold at a discount of up to $20 per ounce over official prices. It must be noted that 15.5% gets added on domestic prices, 12.5% on account of import tax and additional 3% as sales duty.