Indian gold imports and premiums could spike after the country’s main jewellery federation reached an agreement with the government over newly imposed taxes following an 18-day strike.
Previously, the All India Gems and Jewellery Trade Federation (GJF) had opposed a one-percent tax on gold jewellery sales, arguing that many small-scale jewellers would be adversely affected because they lacked the organisational structure to cope with detailed auditing by government agencies.
But on Monday GJF officials confirmed to FastMarkets that they had reached an agreement with the government about the tax.
“It’s been called off since Sunday; on Saturday the GJF and other agencies had a marathon, eight-hour meeting with the government and they have confirmed there will not be any kind of harassment in the imposition of the excise duty,” an executive at the Federation said on Monday.
“We have conveyed the message to our members that we are with the government and the tax,” he added.
Still, not all jewellers returned to work on Monday – Indian daily The Hindu reported that several shops in New Delhi and Mumbai remain shut.
“Some associations are still under strike,” an analyst source in the Indian market said.
While the tax represents the governments wish to generate revenue from the jewellery trade in India, the world’s largest market for gold for use in jewellery, industry observers noted that the tax was also part of an effort to crack down on untraceable ‘black money’ currency transactions in the world’s fastest-growing major economy.
GOLD IMPORTS, PREMIUMS COULD RETURN AS DEMAND RESUMES
There have been heavy discounts on physical gold kilobars in Mumbai since the strikes began – they were last assessed at $35-25 on Friday. Gold kilobars of 99.5 percent purity were last at a premium late in February.
With jewellery such an important part of Indian demand for gold, the strikes have restricted trade and imports into the country since they were announced. But their end should renew physical demand for gold, which should in turn boost premium prospects.
“It’s difficult to take a call on the market right now as today is the first day the market has been open [since the strike began] but surely there is pent-up demand and that should improve things,” the analyst said.
The latest Indian customs data show that gold imports in February at 23.8 tonnes were the lowest on record.
Traders and importers had been expecting the government to lower the 10 percent import tax on kilobars as part of its February 29 budget only to be surprised when New Delhi instead imposed the taxation on jewellery.