India Gold-Demand seen undented by duty rise
06:28 a.m. Jan 06, 1999 Eastern
By Hari Ramachandran
NEW DELHI, Jan 6 (Reuters) - India's decision to increase customs duty on
gold imports is unlikely to hit consumption but may hamper progress towards
liberalising trade in the yellow metal, trade and industry officials said on
Wednesday.
''Gold is price-inelastic as far as consumption and consumers are
concerned,'' said Manoj Kapoor of Jindal Dyechem Industries, a leading
Delhi bullion trader. ''On Tuesday, despite the domestic prices going up,
there was no let-up in demand.''
The Indian government decided on Monday to raise the gold import customs
duty to 400 rupees ($9.41) per 10 grammes from 250 rupees. The
government said the rise would bring it additional revenue of up to 2.5 billion
rupees.
Kapoor said genuine importers would be hit by the move as it had now
become lucrative for the unscrupulous to smuggle gold.
Traders said growth in demand from rural areas on expectations of a good
summer crop and the beginning of the wedding season from mid-January
would spur buying.
''Consumption of gold is not going to take a hit because of the Indian
mentality towards gold...the rural population will still buy gold because it is
their only source of saving,'' said a dealer at a foreign bank which imports
gold.
He said the very purpose of liberalising gold imports was to stop the flow of
the metal through unofficial channels, and in that sense, the government's
decision was a step backwards.
For decades, India had strict controls on gold imports, a policy widely
believed to have only encouraged large-scale smuggling. After the country
launched an economic reform programme in 1991, it gradually eased controls
on gold imports.
India also authorised the import of gold by designated agencies, including
banks, in October 1997.
Experts and officials had said that lowering of tariffs on gold was a step
towards current account convertibility.
The World Gold Council said the process of liberalising India's gold sector
and of moving towards convertibility had been put in jeopardy.
D.V. Harish, director of Davanam Exports Pvt Ltd, agreed. ''... imposing
this duty now is a very wrong step,'' he told Reuters.
The government said that 575 tonnes of gold were imported through official
channels in the first 11 months of last year, an increase of around 28 percent
over the same period of 1997.
Girish Kumar, president of the Chokshi Mahajan (Bullion Merchants
Association of Ahmedabad), said the Indian market would maintain its annual
consumption growth of 20-22 percent.
He said India had consumed around 1,000 tonnes of gold in 1997/98
(April-March), of which about 720 tonnes was imports and the rest was
scrap and recycled gold.
He expected consumption in 1998/99 to be around 1,200 tonnes.
''Indians had bought gold when the prices ruled at $350 per ounce and are
purchasing now when the prices are lower. Consumption can increase but
cannot decrease,'' said Sanjeev Garg, a leading Delhi bullion trader.
($1-42.5 rupees)
(With contributions from Ahmedabad, Bangalore and Bombay
bureaus)
Copyright 1999 Reuters Limited |
