Despite India’s busy wedding season, gold refining has come to a grinding standstill because refiners have been unable to sell bullion for more than a month.
Due to widespread smuggling and a hefty import charge of 18% on gold, refiners are unable to record any bullion sales during the past six weeks.
Bullion refining and gold smuggling are usually inversely proportional. When smuggling increases, gold refining significantly decreases as smuggled gold meets a significant share of the gold demand. Price movements of the metal, too, influence bullion refining demand.
MP Ahammed, Chairman, Malabar Group, said the recent surge in smuggled gold and gold price rise have impacted the bullion refining business. A sizeable share of gold demand, which is usually met by recycled and dore gold, has shifted to the grey or unorganised segment of the trade.
An increase in gold smuggling has severely dented bullion refining and the government needs to look at reducing gold import duty to offer level-playing field to all stakeholders of the jewellery retail trade, he added.
The World Gold Council has estimated gold smuggling to increase 33 per cent to touch 160 tonnes in 2022 against the pre-pandemic period. India’s gold refining capacity stands at 1,800 tonnes among 33 refiners, as per WGC data.
Domestic refiners import dore (raw gold) which attracts lower import duty of 14.35 per cent. India’s dore imports increased 24 per cent between last January and September to 168 tonnes against 136 tonnes logged in the same period previous year, according to WGC.
Spot gold was trading at $18-25/ounce (about 31g) at a discount, against a typical premium of $1, for a record 40 days due to excess supplies, largely from unorganised trade.
Samir Kapur, an independent financial advisor to gold refiners, said the effective tax along with GST on gold now stands at 18.45 per cent against 14.07 per cent charged prior to last July.
Multiple import duties depending on source of imported gold has also dented the refiners. For instance, he said the India-UAE trade deal allows for bullion imports by jewellers at 14 per cent from the UAE and this has posed a survival challenge for Indian refining industry.