Budget is Positive for India’s Gold Market: WGC

Mumbai: The World Gold Council (WGC) observed that the policy announcements made in the 2021-22 Union Budget should be positive for India’s gold industry as a lower import duty may boost consumer demand and curb unofficial imports, according to a WGC market update titled ‘Union Budget impact on Indian gold market’.

The WGC report deep-dives into the key announcements and shares key insights on consumer impact, making the gold market more organized, impact of boosting rural incomes on gold demand, formation of the International Bullion Exchange and the domestic gold exchange and the overall outlook for the industry in 2021.

Mr. Somasundaram PR, Managing Director, WGC (India), commented, “While the rationalization of import duty on gold is a step in the right direction, we hope this is the first of a series of such cuts. Tax cuts soften price increase but are not necessarily a big driver of demand unless the cut is steep or is accompanied by a sharp drop in domestic prices due to other factors. In the case of this year’s Union Budget announcement, the net reduction in duty of 2.19% juxtaposed with a 42% rise in gold prices since July 2019, when duty was last raised, cannot, on its own, be a strong enough trigger for demand. Our econometric analysis suggests that the impact of this approximate 2.2% net reduction in the duty may result in an increase of slightly less than 7 tonnes per year in long-term consumer demand, everything else remaining constant. Every such cut in duty will weaken the grey market and promote transparency in official inflows. However, following a disruptive year when unemployment and loss of livelihoods have been a reality, the support eco-system around tax avoidance is likely to be stronger even at the current level of tax (post-cut) at 14.07% on gold.

“The regulatory clarity in this budget by way of the appointment of SEBI as the regulator of domestic gold spot exchanges, will spur infrastructure development and good delivery standards, enabling India to emerge as a major bullion trading hub. We expect the formation of the International Bullion Exchange at GIFT-IFSC city to happen more quickly as the relevant notifications and regulations are already published and the authority is working on the enactment of the operational framework of the exchange. However, the domestic gold exchange may take longer, as SEBI chalks out future steps to work on the modalities of the exchange and the necessary regulatory framework. Directionally, this year’s budget can be considered very positive for the industry.”