India, the world’s second-largest consumer of the precious metal, is attempting to plug loopholes in its trade policy. The central government on Wednesday restricted imports of plain gold jewelry, imposing rules that require importers to have permission or a license before buying the products from overseas. The move comes after some importers exploited a policy flaw, sourcing plain gold jewelry from unexpected suppliers like Indonesia to avoid paying import taxes. The Ministry of Commerce has moved swiftly to prevent such tax evasion and safeguard its domestic gold market, which accounts for the bulk of the country’s demand for the yellow metal.
According to Cama Jewelry of Managing Director Colin Shah, the restriction is expected to curb unauthorized imports and ensure the government receives tax revenue for the purchases. He said the move would also protect the local manufacturing industry from being undercut by cheaper imports. However, it may result in a rise in consumer prices, as dealers who rely on imports from unexpected sources like Indonesia will now face higher costs from other suppliers.
Shah added that Jewellery demand is expected to remain muted this year due to many factors, from high inflation and a weak rupee to a heat wave that could keep people indoors. Jewelers hope to take advantage of the wedding season, which usually begins in April and runs through the end of May. But the heatwave has dampened their spirits, he said. “People don’t want to venture out of their homes in this weather, so that they won’t shop. It will affect sales for sure,” he said.
Despite all the challenges, the demand for gold is still strong. The demand for gold bars and coins jumped by a whopping 296 percent this year, compared with the previous year, according to data from the World Gold Council (WGC). The demand for gold jewelry nearly doubled in value terms to Rs 2,61,140 crore ($3.6 billion) in 2021, compared with 316 tonnes in 2020.
The WGC says that India’s demand for gold was influenced by the successful progress of the covid-19 vaccination program and economic growth, which altered consumer sentiment and made the country’s currency more attractive against the dollar. The global price of gold rose to a five-month high in June.
The Indian government has been experimenting with sticks and carrots to lure savers away from bullion. It includes higher interest rates on bank deposits and a revamped gold monetization scheme that lets households hand over their physical gold for a small fee. The central bank has also ramped up the issuance of sovereign gold bonds in grams of precious metal. But the government’s attempt to limit domestic demand is a step in the wrong direction, according to some analysts. They say the country should focus on building capacity in the sector and promoting the development of best practices, state-of-the-art machinery, and manufacturing skills, enabling it to produce quality jewelry at competitive prices.
