The Telegraph
Since 1st March, 1999
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Duty cut may not bring back shine to gold

New Delhi, March 8: With this year’s Union budget cutting duty on the yellow metal, is there a pot of gold at the end of the rainbow for those dealing in bullion'

Perhaps not. Though a welcome step, finance minister Jaswant Singh’s duty sops comes at a time when war hysteria has pushed up prices and pushed down demand.

The finance minister in the 2003-04 federal budget has cut the import duty on gold biscuits and coins from Rs 250 per 10 grams to Rs 100. The duty cut will, however, not apply to tola bars (116.64 grams bar)

Of course, the World Gold Council (WGC) has welcomed the government’s decision to further liberalise and deregulate the Indian gold market.

WGC considers that the reduction in customs duty from Rs 250 per 10 gm to Rs 100 per 10 gm on gold imports of serially numbered bars or gold coins is expected to lead to an increase in import through official channels.

“This step will help reduce the gap between the international and domestic gold prices. In addition, lower import duties will encourage traders to import gold through official channels, thus resulting in added revenue to the exchequer.

“We are confident that this is another step that will enable India to emerge as the gold-trading capital of the world,” said Hiroo Mirchandani, Associate director, Jewellery (India), World Gold Council.

However, the market, reflected in the retail outlets jostled in the Karol Bagh market in the capital, one of the prime hub of jewelers in not only Delhi, but the country, say that they are not impressed.

According to a consultant with Mehrasons Jewellers (Yashpal Mehra Group), one of the leading jewelers in the city, “the cut in customs duty will have only a marginal effect, prices will come down by an insignificant amount, moreover it will not translate to consumers going to buy, as no major price cut is going to come.

However, he emphasised that the real culprit is the lack of demand in the market. Gulf situation has resulted in wide fluctuations in gold prices, he said. Gold sales have been declining over the years. Hallmarked and branded jewellery are the new rage and buying gold for security and investments is on its way out, said the consultant.

Dharambir Khurana, owner of Standard Jewellers which has been in the gold business for decades, said, “the day after the budget, prices of gold came down by Rs 150 per ten gram, but that has neither had any impact on the increase in demand nor any major difference to the businessmen.

“Personally, I feel that the government is only going to lose revenue by this measure. In absence of demand in a recessionary market, the price cut by Rs 150 Rs per gram does not mean much. Disposable incomes of people have gone down. If they have surplus cash, they spend it on cars and mobiles which they buy in installments and not on gold, said Khurana.

Mehrason Jeweller’s Consultant said, “at best the duty cut can be termed as a small push for an industry which really needs one.”

Though India is the largest market for gold consumption, 25 per cent of it is through circulation of old jewellery from the family heirlooms, he said.

However, there are notes of optimism here and there. “Demand should pick up even though the monsoon has not been very good,” a trader said.

According to Icra managing director P.K. Choudhury, “Monsoon largely determines demand for the metal but we should see some activity once the marriage season starts.”

India is the world’s largest gold buyer, which last year consumed about 737 tonnes.

Even among the traders some said that imports would rises, even if global prices remain firm, as domestic supplies would not be able to cope with demand when the wedding season starts.

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