The government’s decision to increase duties on gold could result in 2.4% decline in the global demand for the precious metal in 2019, while the long-term demand in the Indian market could fall by around 1% every year if the duty becomes permanent, according to the World Gold Council (WGC).
“... we estimate that the recent announcement of a 2.5% increase to gold’s import duty by the Indian Ministry of Finance may result in a reduction in 2019 demand of approximately 2.4%. And that, if the higher levy were to become permanent, it could reduce long-term Indian consumer demand by slightly less than 1% per year,” stated a report by the global organisation.
While presenting the Budget on July 5, Finance Minister Nirmala Sitharaman proposed increasing the customs duty on gold and other precious metals from 10% to 12.5%.
Incidentally, the All-India Gem and Jewellery Domestic Council had sought a reduction in import duty on gold, in its pre-budget recommendations submitted to the Finance Ministry.
Meanwhile, WGC is of the view that broad structural economic reforms that are being implemented in both India and China are likely to support long-term demand for gold. The global body also expects central bank gold demand, led by emerging markets, to remain positive in the near future.
Overall demand ‘robust’
“For the rest of the year, we believe that consumer demand may be soft and speculative activity could amplify price movements but, overall, it is likely that investment demand will remain robust and central banks will continue their net purchasing trend,” added the report.
According to WGC, over the next 6-12 months, financial market uncertainty and accommodative monetary policy are likely to support gold investment demand.