Gold imports dip 14.5% to 759 tonnes in 2018 on tepid demand, rule changes

Sluggish jewellery offtake due to higher prices and not so good monsoon stifled rural demand; Consumers were also reluctant to buy ornaments in cash beyond a limit

India’s gold imports have declined by 14.5 per cent in 2018 to 759 tonnes from 876 tonnes the previous year. The reason are, sluggish demand, changes in regulations such as alteration of criteria for nominated agencies to import gold and the ban on export of 24 carat jewellery to stop misuse.  

According to data compiled by the GFMS Thomson Reuters, the drop in import volumes is matched by a decline in the value of inward shiipments, which were estimated to be lower by 13.4 per cent to $31.37 billion in 2018.

The fall in imports is attributed to weak rural demand and to higher gold prices brought about by a weak rupee which reduced the metal's appeal to price-sensitive investors.

Debajit Saha, Senior Analyst, GFMS Thomson Reuters, says, “Sluggish demand for gold jewellery on account of price, and a not so good monsoon resulted in lower disposable liquidity in the hands of the farming community. Consumers’ reluctance to buy jewellery in cash beyond a small limit fuelled the drop in demand in the market. After demonetisation and introduction of GST, consumers have been very careful in buying gold in cash.”

The Good and Services Tax (GST) granted greater leeway to authorities to check compliance standards. The tax has increased the traceability in the supply chain and this has effectively has been changing the industry. It is now harder for traders to escape the authoritative lens and engage in business deemed unethical.

Regulatory changes were also responsible for the fall in gold imports. In Ocober 2017, the government changed the criteria for nominated agencies eligible to import gold. Previously four-star export houses from the gems and jewellery sector and five-star export houses from other sectors were regarded as nominated agencies for gold import. In October last year, this rule was scrapped and it was mandated that status holders (export houses) could only import gold for actual use. In other words, the imported gold would have to be used in the manufacture and export of jewellery by such export houses, in case they had to retain the validity of the nominated agency certificate. 

Imports of gold by nominated agencies have dropped drastically since. Nominated agencies imported only 57 tonnes of gold in 2018 against 266.7 tonnes the previous year. What's more, duty was paid on the bulk of this quantity, indicating  that the gold ended up being imported for domestic use only. 

However, there is substantial increase in direct import by exporters.

The government had also banned export of 24 carat jewellery and medallions, which impacted round tripping. Import for such jewellery made for exports also fell. Import of dore gold or unrefined gold has also jumped indicating Indian bullion refineries' capacity utilation has improved. Dore import was up 24.3 per cent to 279.7 tonnes.