Demonetisation, GST impact: India is fast ceding gold market share to China

According to WGC gold demand trend report for March quarter, India's share of global gold demand is down to 15.5%, even as China's has increased to 38%

The January-March period of 2018 has been the worst for India’s share in the global gold demand.

According to the World Gold Council’s gold demand trend report for the March quarter, released on Thursday, total global consumer gold demand (jewellery and investment) in 2017 stood at 3,198.6 tonnes, 2 per cent lower than that in 2010. 

India’s share in the 2010 demand was 31 per cent of the total, and China’s was 29.7 per cent. In 2017, while China’s share of the total demand increased to 31.6 per cent, India’s fell to 23 per cent. China and India have traditionally been the two biggest gold consumers.

In the March quarter, India’s share of the world gold demand fell further to 15.5 per cent, while China’s increased to 38 per cent. The changing pattern could be attributed to several structural changes that India has gone through in the past five-six years. By comparison, China has also implemented reforms but it has done so without disturbing the market.

WGC India Managing Director Somasundaram PR, however, said India’s share had fallen but demand had not disappeared. “Several transparency measures taken by the government, starting from excise, PAN number, applying PMLA, card payment and the GST, have seen a shift from off-book transactions to accounted transactions, and that has impacted demand. Slowly, I see average annual demand moving back to earlier years of average 650 tonnes and higher from 737 tonnes in 2017.”

In China, gold trade has entirely shifted to online spot exchanges and imports are also recorded on the exchange. India, on the other hand, first put stricter restrictions on gold imports, and later demonetised high-value currency and implemented stricter regulations to reduce the menace of black money in bullion.

The last straw, apparently, was the implementation of the goods and services tax (GST). The WGC says “larger, national and regional chain stores reported better sales than smaller, single-store and medium retailers” after the GST roll-out. This part of the market adapted very quickly and easily to the introduction of the GST. 

On why larger players are benefiting, Ahammed MP, chairman, Malabar Gold & Diamonds, said, “Credit should go to the progressive approach and outlook of the organised players as well as to consumers who are becoming more discerning with time. National and regional chains have been able to clock better sales thanks to effective marketing strategy, insight-driven sourcing and inventory management strategy and quality customer service. In addition, the consumers of today have become knowledgeable and demanding. As a result of those factors, organised players have started making their presence felt more strongly.”

However, the WGC further notes, “The wider jewellery industry continues to make progress in adapting to the new GST regime. Market research suggests that GST compliance is relatively high. And field research indicates that almost three quarters of the gold currently being sold in India is accounted for properly”.

India’s demand took a hit and fell to an eight-quarter low of 115.6 tonnes, down 12 per cent from that in the March 2017 quarter. Jewellery demand was also down 12 per cent year-on-year to an almost stable global gold demand for jewellery. Somasundaram said, “Improving macroeconomic indicators suggest a positive outlook for jewellery demand. Moreover, the Union Budget announced measures to boost rural incomes, including higher minimum support prices and an increase agricultural credit. This bodes well for demand from the all-important rural sector, as does the forecast for a normal monsoon this year.”