Gold refineries, supplying 45-50 per cent of pure gold for India’s domestic consumption, have virtually come to a standstill following the imposition of a higher import duty which has resulted in huge a discount thereby making their business unviable. Under the ‘Make in India’ initiative, these dore refineries enjoyed a lower duty on imports of unrefined, or dore gold. Now, at least for bullion refining, ‘Make in India’ is dead.
While two or three refineries, including MMTC-PAMPS, are still operating, an industry official, commenting on the evaporating demand for gold, said that "by next month, refining business will come to a complete halt".
The demand for gold took a major hit in the domestic market after the import duty on the precious metal was raised
from 10 per cent to 12.5 per cent, leading to a sharp increase in gold prices. However, unofficial import of the metal proved to be lucrative after the duty hike with smugglers making gains of a whopping 7%. They started selling gold at a huge discount after the budget, which resulted in an overall slowdown in legitimate business.
“With the grey market in gold flourishing and official market quoting at a high discount, bullion refineries are struggling hard to stay afloat,” said James Jose, secretary, Association of Gold Refineries and Mints.
Compared to the landed cost of imported gold, domestic official price is quoting at a 3-4 per cent discount in various markets in India. The price, however, is high at around Rs 37,500 per 10 g, which is keeping consumers away.
Indian refiners, who import dore, or unrefined gold, gain 0.7 per cent over pure gold imports. Over 30 refineries such have come up in last 4 years and were supplying 45-50 per cent used for domestic market (550-600 tonnes) including for making coins or jewellery. In the September quarter so far, dore imports have fallen from a monthly average of about 23 tonnes to just 3-4 tonnes per month from July.
“Refiners have supplied, on an average, 22 tonnes, on a fine gold basis, in the first six months of 2019, which in August slumped to just four tonnes,” said Debajit Saha, Senior Analyst - Precious Metals Demand, GFMS Thomson Reuters.