After reaching highs of $8.4 billion in March 2021 and $6.3 billion the next month, gold imports have precipitously dropped to $0.6 billion in May, according to official figures.
Imports of unworked gold continue to remain very low as jewellers foresee a major slump in sales, going forward, industry insiders say. They point to salary cuts, job losses and economic uncertainty to have hemmed in consumption demand from the urban middle class, a large part of the buying demography.
This is expected to have further ripple effects on employment in the sector, which had been under pressure even before the pandemic, and has since then seen major job losses as small jewellery units have been hit hard.
India was the fourth-largest gold importer in the world in 2019, according to the World Gold Council (WGC) report. The data for 2020 is yet to be released. Imports in 2020-21 rose by 22.58 per cent to $34.6 billion, despite the pandemic.
Waiting for sales
The uncertainty for the COVID-hit, labour-intensive sector comes as it is preparing for the peak sales season. The July-August period is generally the peak of gold jewellery sales in the country as purchases rise ahead of the marriage season in October-December.
Considered auspicious, gold is integral to Hindu weddings which contribute to about 50 percent of total gold demand in India, according to the WGC.
“From September 2020 onwards, as the lockdown was gradually lifted, imports rose fast till April. As the second wave arrived and lockdowns were reimposed, all stores in major cities were closed,” Sabyasachi Ray, Executive Director at the Gems and Jewellery Export Promotion Council (GJEPC), told Moneycontrol.
“It will at least take a month or two to clear existing inventory before imports rise again, and, that too, if the situation gets back to brisk business quickly,” Ray added. If that does happen, the sector is set to boom as the number of marriages will shoot up since many weddings were postponed since last year, he said.
However, that hope remains elusive as state governments prepare for a third wave of COVID-19, brought about by multiple infectious, mutated variants of the virus.
Price factor
In early August 2020, gold prices had hit their highest point, scaling Rs 57,000 per 10 gms on the back of several global factors. Since then, it has constantly fallen, overall.
According to GJEPC, another reason for the sudden rise in imports during March 2021 is the historic reduction in prices. In March, prices had fallen by 8 percent in just one month, as a result of which, average monthly gold price of Rs 43,799.47 per 10 gms (April 2020- Feb 2021) fell to Rs 40,179 per 10 gms in 2021.
This had coincided with the government cutting the import duty on gold from 12.5 percent to 7.5 percent to reduce smuggling and keep prices stable. Subsequently, consumers also paid lesser tax of 14 percent for refined gold as opposed to the previous 16.2 percent.
“After hitting the highest point in 2021 on January 5, when gold prices reached above Rs 53,400 per 10 gms across major cities, including Mumbai, Delhi and Kolkata, prices have remained lower. So consumers have all incentives to buy it,” Sanjay Agarwal, a senior gold trader from Kolkata, said.
Experts say the lack of disposable incomes and an erosion of savings have brought down demand, especially from smaller buyers. This is expected to continue in the next few months.
“The average Indian will buy gold only a few times in his life, mostly during social occasions like marriages and birth of children, and often due to religious compulsions. It’s clear that working class citizens simply can’t afford to buy gold even when prices are low, given the economic impact of the pandemic,” a senior trade policy expert who advises the finance ministry on commodities trade said