‘Curbing imports is not the way out for checking demand’

Jewellery company stocks on the bourses shuddered after the Economic Survey 2013 released on Wednesday, urged the Government to plan a long-term measure to tame the ever-rising demand for gold. With the recent drop in gold prices, analysts feel that the Government may increase import duty on the yellow metal.

Shares of Gitanjali Gems, Thangamayil Jewellery, Rajesh Exports, Asian Star, Suashish Diamond and Shree Ganesh Jewellery House were down 2-3 per cent.

However, Gold exchange traded funds of Reliance, Motilal Oswal, SBI and Kotak were up, while that of HDFC was down marginally.

CJ George, Managing Director, Geojit BNP Paribas Financial Services, said any move to make gold costlier for consumers would not impact the earnings of jewellery companies. On the contrary, he said, it would be affected only if gold prices go down.

Not to hurt profits

The Government should realise that over a period of time, the flow of capital to productive investments such as financial assets was discouraged through excessive regulation.

“We pay the price for letting fund flow unregulated and uncontrolled into unproductive assets such as gold. One can invest in gold using cash and without KYC (know your customer) document. What else is needed,” he said.

The Survey has noted that curbing inflation and making financial instruments more attractive were two good measures that would shift demand away from gold.

Basic problem

Kishore Narne, Head — Commodity and Currency, Motilal Oswal Commodity, said if the Government intends to curb gold imports, it should facilitate measures to bring out the idle gold lying with Indian consumers. “Making gold costlier for consumers will not suppress demand or bring down imports. Launching gold bonds, financial products tracking gold returns and bullion banks can be a solution to bring out the gold lying in the lockers,” he said.

suresh.iyengar@thehindu.co.in

(This article was published on February 27, 2013)
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