GST uncertainty clouds gold demand and import

The import bill at end-February was $23.3 billion, for 558 tonnes of import

The bill for gold import fell again in 2016-17. Whether this would continue or not would depend on multiple factors. Demand is good, showed the March quarter. Whether adverse weather would spoil the rural demand story and how the coming goods and services tax (GST) would be implemented will decide the trend. Policy change is also possible from the government — there is talk of Aadhaar-based Know Your Customer checks being extended for jewellery buying. 

The import bill at end-February, for the first 11 months of 2016-17, was $23.3 billion, for 558 tonnes of import. Another 80-85 tonnes is estimated to have come in March, the final month — that would mean an import bill for the year at $26.8 bn (640 tonnes overall). The demand trend is expected to continue ahead of Akshaya Tritiya on April 28, considered an auspicious occasion to buy the metal. 

Sudheesh Nambiath, lead analyst for precious metals at GFMS Thomson Reuters, said: “The trend remained strong in March and total imports in the first quarter are likely to be 210 to 215 tonnes, 78 per cent higher than the same period last year. Whether this trend continues hinges on how the GST rates on jewellery are set.”

GST will decide the trend for demand and import. There are several uncertainties. These include how old jewellery sold against a new purchase will be treated for GST, whether old jewellery can be sold for cash or needs a bill, whether input credit will be available for such transactions or not.

Nitin Khandelwal, chairman, All India Gems & Jewellery Trade Federation, said: “The VAT (value added tax) rate across the country is one per cent, except 1.2 per cent in Maharashtra and five per cent in Kerala, where under a composite scheme it comes to 1.5 per cent. If the (GST) rate is kept high as feared, trade will shift to the unorganised sector.”

Even for excise duty, says the GFMS annual survey, issued on Monday, “it is estimated that fewer than 2,000 jewellery manufacturers registered as of the end of 2016. This might be a small per cent of all manufacturers”. Most took shelter under the turnover threshold, below which registration is not required. 

Nambiath says: “Given the uncertainty, many retailers are shifting increasingly towards gold metal loans. We estimate that of the total gold supplied by banks, 30-35 per cent (in the March quarter) would have been on lease, against 23 per cent estimated for the past calendar year”.