- Tuesday, March 25, 2025
Analysts said customs duty cut will help curb gold smuggling and lead to a growth in the organised jewellery sector
By: Shajil Kumar
GOLD prices have corrected sharply by 7 per cent or Rs 5,000 per 10 grams in the local markets after the government slashed basic custom duty on gold, and the lower costs will encourage more people to invest in the yellow metal, both as a commodity and as a financial asset, experts say.
Analysts said customs duty cut has made gold imports cheaper. The move will help curb the rampant issue of gold smuggling, leading to growth in the organised jewellery sector.
“The cut in basic custom duty on gold prices makes the yellow metal cheaper. While this can lead to weaker market sentiments due to the sudden change, retail investors stand to benefit from the new, more attractive pricing for gold,” Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities told PTI.
Echoing similar sentiments, Krishnan R-Director & CEO of Unimoni Financial Services said lower costs will encourage more people to invest in gold, both as a commodity and as a financial asset, which is often seen as a hedge against inflation and currency devaluation.
Following the Budget announcement by Finance Minister Nirmala Sitharaman that the government has slashed basic customs duties on gold and silver from 15 per cent to 6 per cent, gold prices crashed by Rs 3,350 to Rs 72,300 per 10 grams in the national capital on Tuesday.
The precious metal prices continued the downtrend and plunged by Rs 650 on Wednesday. The yellow metal rates saw another steep fall on Thursday, nosediving by Rs 1,000 to settle at Rs 70,650 per 10 grams, as per the All India Sarafa Association.
After the duty cut, the yellow metal has declined Rs 5,000 per 10 grams or 7.1 per cent in the past three sessions, since July 23 when it had fallen Rs 3,350 to end at Rs 72,300 per kg.
Also, gold of 99.5 per cent purity declined by Rs 1,000 to Rs 70,300 per 10 grams on Thursday. It had also lost ground by Rs 5,000 per 10 grams in the three previous sessions.
On Thursday, silver rates also lost ground by Rs 3,500 per kg to Rs 84,000 per kg. In the past three sessions, the rates of the bright metal fell sharply by Rs 7,000 or 8.3 per cent to Rs 84,000 per kg from Rs 91,000 per kg.
Jewellery demand
Traders also said that a sharp correction in gold prices have revived the demand for jewellery among consumers as they flocked to jewellery outlets to take advantage of lower prices.
“The reduction in basic custom duties have spurted the demand for jewellery in the domestic markets. Further, this will act as a sales booster for jewellers before the festive seasons, encouraging fresh buying by the consumers due to lower prices,” PC Jeweller Managing Director Balram Garg told PTI.
Low gold prices will help domestic jewellers, particularly the organised ones, Garg said.
According to MP Ahammed, Chairman, Malabar Group, the reduction has been a long-standing demand of traders in the gold sector, as it is expected to curb the rampant issue of gold smuggling, which poses a substantial threat to the Indian economy.
“This move will help dismantle the mafia chain involved in smuggling, leading to growth in the organised jewellery sector and increasing government revenue through GST and income tax,” Ahammed said.
As per the market experts, there will be stability in bullion prices once there is clarity on several economic and political factors such as interest rate cut by the US Federal Reserve.
“Stability in gold prices is expected once there is clarity on several economic and political factors including, potential interest rate cuts in the US and India, and the outcome of the US Presidential elections will provide a clear direction for gold prices,” Jateen Trivedi said.
Platinum, silver imports
Meanwhile India’s silver and platinum imports from the UAE, previously benefiting from concessionary duties under a trade agreement, have ceased after the recent cut in import duty for gold.
After the reduction, there is no incentive to bring silver or platinum into India under the Comprehensive Economic Partnership Agreement (CEPA) signed between India and the UAE, said Prithviraj Kothari, president of the India Bullion and Jewellers Association (IBJA).
“Now that regular customs duty for silver is lower than the tax under the CEPA, nobody’s importing silver anymore.”
Bullion dealers primarily imported silver from the UAE under the CEPA, as they only needed to pay an 8 per cent import duty compared to the regular 15 per cent.
This helped the UAE corner nearly half of India’s silver imports, with its shipments surging to 1,998 metric tons in the first five months of 2024 from just 133 tons during the same period a year ago.
The imports of platinum have also stopped because of the duty cut, said Nitin Kedia, national general secretary at the All India Jewellers and Goldsmith Federation.
India’s four-week platinum imports from mid June eclipsed 2023’s total as bullion dealers exploited a loophole by registering alloys containing around 90 per cent gold as platinum to avoid higher duties, sources told Reuters.
Around six tons of silver and two tons of platinum alloy have been stranded due to the change in the duty structure, and importers are now facing losses because of a sharp drop in global prices, said a Mumbai-based bullion dealer.
“Importers must now either export silver grains back to the UAE or sell them at a discount in the Indian market,” the dealer said. (Agencies)
