GST impact: Gold imports in H2 of 2017 set to fall to 50% of H1 level

Business Standard By Rajesh Bhayani July 28, 2017, 14:40 IST

However, on y-o-y basis, total imports in 2017 will be one-and-a-half times that of 2016 volume

After 500-plus tonnes of import in first half of 2017, supported to a great extent by a 126 per cent surge in demand during the June quarter, gold imports are estimated to nosedive during the second half of the year, due to the implementation of the Goods and Services Tax (GST). By one estimate, the drop in imports could be a staggering 50 per cent, or about 250 tonnes, in the July-December period this year.

According to Thomson Reuters' GFMS Gold Survey: H1 2017 Review and Outlook, "With imports in the first half already near the whole of 2016 volumes, it is less likely in our view that imports will cross 250 tonnes in the second half." This will mean that despite the huge cut in the second half this year, total imports for the year 2015 will be about 50 per cent higher, at around 758 tonnes, than the 2016 import volume of 510 tonnes.

The fall in gold imports during H2 of 2107 is largely driven by early jewellery purchases and a strong revival of agricutural activity following very good monsoons last year. The farm sector was virtually out the market prior to the advent of rainfall in 2016. This year is also expected to be good for the sector and a spike in demand may be seen in the December quarter.

However, according to the GFMS survey, “GST at three per cent on bullion and five per cent on jewellery making charges is not high enough to keep customers away. However, our recent survey on the unofficial market suggests it is going to thrive more efficiently as end-to-end it will be a cash-based business with less traceability.”

"With imports in the first half already equalling the volumes achieved in the whole of 2016. it is less likely in our view that imports will cross 250 tonnes in the second half. But that said, consumption demand by the end of the year is forecast to reach close to 660 tonnes, i.e, 10 per cent higher year-on-year (596.5 jewellery and retail investments put together). Import numbers also include imports for re-exporting."

In the short term, GFMS also sees prices remaining soft as India’s demand is likely to be lukewarm in the second half. The survey says, “Given the introduction of the Goods & Services Tax (GST) in India, there is a relative hiatus in imports to that crucial market at present, and this is leaving gold prices susceptible to softness, not least as it is often Indian demand that responds positively to price weakness. While this means that the Northern Hemisphere summer is likely to see subdued prices, we expect this to be a passing phase, albeit one that may well see prices temporarily drop below $1,200. However, we continue to expect prices to recover later in the year as there is both a seasonal upturn in demand in Asia and a recovery in western investment.”

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