Dubai: UAE’s gold and jewellery trade aims to be a direct beneficiary as India imposes further controls on domestic consumption of the metal in all its forms. India has just raised import duty on bullion from 8 per cent to 10, which would further raise retail prices for shoppers in India.
This is where opportunity exists for Dubai’s jewellery retailers. Already a substantial gap has built up between prices here and what the same would cost in India. (For instance, a no-frills 10-sovereign gold chain will cost Dh2,800-Dh3,000 less if bought in the UAE as compared to what it would be in the southern state of Kerala, where there is a sales tax of 5 per cent. Sales tax varies from state to state; for instance Gujarat’s is lower at 1 per cent.)
But the spin-off for local jewellers will not be confined to tapping demand from Indian shoppers who want to make use of the growing price differential. “We have heard reports about new controls on gold purchases in Pakistan and higher taxes elsewhere in south-east Asia, all of which significantly raises the attractiveness of buying jewellery here and then taking it back to their home countries,” said Shamlal Ahmad, director of international operations at Malabar Gold and Diamonds.
“Authorities at Indian airports are lenient in letting through what Indian expats can bring into the country,” Ahmad said.
“Those who take jewellery with the intention of selling there can easily pick up a tidy sum based on the retail price difference.”
While the 10 per cent duty on bullion adds up to the end-user pricing in India, there could be further increases. Indian authorities have now restricted the buying and selling of the metal within the country to those bullion firms which can import and export at the same time. What this does is restrict the supply of gold within India and add to the retail margins.
Interestingly, the retail price spike in India has led to a return in gold smuggling activity and some major seizures have been reported by authorities there. Plus, there has been a spurt in “parallel imports” whereby gold jewellery is brought into India by road from Nepal.
But UAE’s gold trade has an eye on the bigger picture. “If the gap widens between retail jewellery prices here and in India, it will definitely translate into increased demand from Indian expats, something we could witness during the festive season in October/November,” said Ahmad.
The jewellery retail sector here does need some of the lustre to return. After an exceptional month in April, when gold prices tanked and led to a major upswing in buying, it has been somewhat quiet since.
“The reason for the dip in sales during May and June can be attributed to more than just the price volatility of gold; this is generally a period when most residents are planning their holidays and hence the focus shifts to spending on many other things other than jewellery,” said Joy Alukkas, chairman and managing director at Joyalukkas Group.
“Ultimately, the majority of gold consumers look at it [buying] from a long-term investment perspective, hence we don’t see much of an effect when price volatility happens. Yes when price fluctuations are too frequent, consumers get a bit weary; in the long run their trust in the long-term value of gold helps them over come it.”
