India's gold market is experiencing a notable shift as domestic prices trade at a discount of over ₹450 per gram following a substantial increase in import duties. On May 13, the Indian government raised the Customs duty on gold from 6% to 15%, a move aimed at discouraging imports and managing the country's foreign exchange outgo.
Impact of Duty Hike
The increase in import duty has led to a significant discount in domestic gold prices. Kavita Chacko, Research Head - India at the World Gold Council (WGC), noted that the discount widened from an average of $14/oz to nearly $150/oz (₹462/g) post-duty hike. This discount is primarily driven by bullion dealers offloading inventory imported at the previous lower duty rate.
- Previous duty hikes in 2019 and 2022 also resulted in domestic market discounts.
- The current episode is more pronounced due to the scale of the duty increase.
Market Reactions
Surendra Mehta, media spokesperson for the Indian Bullion and Jewellers Association (IBJA), highlighted that the duty change prompted those with stock imported at the lower duty to sell at a discount. N Anantha Padmanabhan, Managing Director of NAC Jewellers, mentioned that jewellers are cutting making charges to spur demand.
"There is virtually no demand," said Mehta, attributing the decline to Prime Minister Narendra Modi's appeal to halt gold purchases for a year.
Varied Impact Across Segments
The duty hike's impact varies across different market segments. Large chain stores experienced a brief surge in panic buying, driven by expectations of further measures. However, they anticipate a slowdown in sales, buffered by inventory and bridal demand.
- Mid-sized and regional players continue to see affluent customer purchases.
- Smaller retailers face challenges due to high prices and reduced sales volumes.
Smuggling Concerns
The WGC's import data suggests a potential rise in gold smuggling following duty hikes. Historically, increased duties have led to higher levels of unofficial gold imports, while reductions have seen declines.
| Date | Import Duty | Domestic Discount (₹/g) |
|---|---|---|
| Pre-May 13 | 6% | ₹14/oz |
| Post-May 13 | 15% | ₹462/g |
The Indian government's decision to hike import duties is a strategic move to control the country's forex outgo, but it has led to significant market adjustments and potential increases in smuggling activities.
