Adverse policies, taxes take sheen off the yellow metal: Experts

Current regulatory policies and the higher tax regime on the gold sector seem to have taken sheen off from the yellow metal, which has witnessed a subdued consumer sentiment even after the onset of the festive season.

The domestic gold industry has remained merely a by-stander watching the festive buying approaching its end without any glitter, in a bid to address the situation, senior bureaucrat from the Department of Economic Affairs, Ministry of Finance, updated the industry about the measures being taken by the government.

At the Senior Economists Roundtable, jointly organised by India Gold Policy Centre (IGPC) and National Institute of Public Finance and Policy (NIPFP), Dr. Saurabh Garg, Joint Secretary (Investments), Department of Economic Affairs, Ministry of Finance stated that working group has been formed to review the current regulatory policies related to gold.

Industry leaders, economists and experts discussed that the weak consumer demand may have been caused by a multitude of factors such as higher imports duty, entry tax, octroi, excise duty and sales tax (VAT), overall general economic slowdown, among others.

The stakeholders raised the demand from the government to address the issues on an urgent basis, through deliberations.

Arvind Sahay, Head of IGPC at the Indian Institute of Management - Ahmedabad, said, "Increase in customs duty to 10 per cent is an issue. It was, however, encouraging to note that the government appeared committed to bringing more transparency into the industry."

For the Goods and Services Tax (GST), if it will be levied at 4 to 6 per cent (with the proposed merging of all indirect taxes) and Customs Duty at 10 per cent, the consumer will need to pay taxes to the extent of 14 to 16 per cent on the purchase of gold. Gold traders are pitching hard for GST rate at 4 to 5 per cent.

"After GST kicks in, what would be the price differential of domestic gold prices over international prices? If indeed prices remain at 10% or more on the upside, this would likely affect the final price of gold to the consumer, and then this could have a further cascading impact on the industry and consumer behaviour and needs policy attention. It would also lead to greater smuggling of gold," the discussions highlighted.

Ashish Nanda, director, IIMA noted, "Gold is an important asset, particularly in India. Policy makers and industry participants recognise the importance of having thoughtful and clear policies to appropriately regulate and nurture the industry for social benefit.

India imports 99 per cent of its gold demand in the form of standard gold of 995 purity called Bullion and mined gold called Dore. India imports standard gold through few licensed institutions viz. bullion banks, nominated agencies and star trading houses.

The import duty on gold was imposed at a time (2013) where the CAD was under severe stress – today, the CAD is reporting a marginal surplus. Therefore, CAD cannot be a reason for continuing the import duty, the stakeholders noted.

Besides government representatives and researchers, the roundtable witnessed participation from top officials and leaders from India World Gold Council, Aditya Birla Group, KPMG, The Bank of Nova Scotia, State Bank of India, Oxus Investments, MCX and Punjab National Bank.