Tuesday 16 / April / 2024
Mumbai: Gold dealers in India, the world’s largest bullion market after China, have deepened discounts to jewellers by as much as seven-fold after a surge in global prices cooled demand and amid speculation the government will cut import taxes in the budget on Monday.
Reductions have widened to $30 an ounce below London cash prices from as little as $4 at the time of the Hindu festival of Diwali in November, said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation. These are record discounts in a market that normally trades at a premium and some dealers are giving markdowns as large as $55 on sales without invoices, Bamalwa said by phone from Kolkata on Wednesday.
Global prices have jumped 17 per cent this year as investors flock to haven assets after slowing growth and financial-market turmoil fueled speculation that the Federal Reserve would hold back from further interest-rate increases. The jump in bullion costs has damped Indian demand which was already suffering after a weak monsoon and poor harvests cut rural incomes.
"There are huge discounts in the market because of the higher prices and duty-cut expectations in the budget," Ranjeeth Rathod, managing director at importer MNC Enterprises, said by phone from Chennai.
The 10 per cent tax is a vestige of curbs imposed in 2013 to cut surging shipments that led to a record current-account deficit and sent the rupee to an all-time low. The controls drove premiums as high as $160 and spurred 200 tons of smuggling in 2014, according to federation estimates. The deficit has since narrowed to a seven-year low, prompting speculation the government will cut the duty by four to six percentage points, Bamalwa said.
Useful income
Not everyone expects a tax cut as it offers useful federal income and the rupee is again approaching a record low against the dollar. The government has focused on fiscal consolidation and the revenue helps fund the fiscal deficit, Joni Teves, an analyst at UBS Group, said in a report on February 18.
"Every year we hope they’ll do something," Bernard Sin, the head of currency and metal trading at MKS (Switzerland) SA, a Geneva-based refiner, said by phone. "So far we’ve been disappointed, but that doesn’t stop us from hoping." The slump in oil prices may give the Finance Ministry scope to cut the duty this time round, James Steel, chief commodities analyst at HSBC Securities (USA), said in a report on February 19.
Gold futures in Mumbai have surged 19 per cent in 2016 to the highest in almost two years, reflecting the jump in global prices. That has calmed demand in India, according to Rajesh Khosla, managing director at MMTC-PAMP India, the biggest refinery in the country.
Identity number
Other reasons have also damped buying. Farmers faced an almost dry winter after the first back-to-back shortfall in monsoon rain in three decades, which cut harvests of everything from rice to sugar cane. That hit incomes in rural India, which accounts for 60 per cent of demand. The limit at which buyers have to declare their unique identity number on purchases was also lowered on January 1.
Purchases will recover as the Akshaya Tritiya festival approaches in early May, UBS said. The event, considered by India’s more than 900 million Hindus as an auspicious day to buy precious metals, falls on May 9. Bullion is bought during festivals and marriages as part of the bridal trousseau or gifted in the form of jewelry by relatives.
Domestic demand was 848.9 tonnes in 2015, World Gold Council data show. Consumption peaked at about 1,000 tonnes in 2010 when India was the world’s largest market. The nation imports almost all the gold it consumes.
