The World Gold Council expects gold demand to range between 650 and 750 tonnes this year from the seven-year-low of 675 tonnes recorded last year.

After a challenging 2016, the Council said India’s gold market faces headwinds with the lingering effect of policies implemented last year. The industry needs to be more contended as implementation of GST could adversely affect the industry in the short term.

However, after demand falling so sharply last year it is unlikely to dip further, it added.

“While demand is likely to improve, our view for 2017 is cautious and we expect consumers to buy between 650 and 750 tonnes of gold. Previous attempts by authorities to clamp down on gold have failed,” it said.

Given the government focus on the industry over recent years, it is somewhat surprising that gold was not mentioned in the Budget but implications for the industry are significant nevertheless.

From April 1, cash transactions of over ₹3 lakh are prohibited. This will have greater impact in rural India where people do not necessarily have access to cheques and electronic payments.

Besides curbing gold purchases, it could encourage gold shoppers to buy gold in smaller quantities spread over more transactions or it could push a large part of demand underground and encourage growth in the black market.

While the government has made progress on GST, there is no clarity on what rate will be implemented and whether customs duty will change to compensate for any potential increase in GST, it said.

Stating that the government’s objective of bringing black money into the official economy is praiseworthy, the Council also noted that it has dented economic growth.

A total of ₹15 lakh crore or 86 per cent of the currency in circulation was withdrawn from the economy by the demonetisation ruling. And these notes were not replaced quickly.

As of February 17, only ₹11 lakh crore or 70 per cent of the withdrawn currency had been issued, said the Council, quoting RBI data.

However, demonetisation is boosting large jewellery retailers and they will continue to grab a larger market share. Moreover, GST will streamline India’s Byzantine tax structure and promises to make gold’s value chain more transparent.

Over time, consumers will move away from cash towards digital payments and organised players should benefit from this trend.

This change in market dynamics will result in more transparency and a better deal for consumers, protecting them from shady practices such as under-carating, said the Council.