Only limited impact on UAE gold market demand after India slashes customs duty

Dubai: On Tuesday (July 23), India slashed its import duty on gold to 6 per cent from 15 - but this will have limited impact on demand for jewellery shopping when visitors from India head to the UAE.

This is according to feedback from multiple gold and jewellery retailers in the UAE and in India, who were taking stock of the import duty cut in the latest budget presented by the Indian Finance Minister Nirmala Sitharaman. The move was made to curb smuggling of gold into India, more so with bullion prices continuing to hit record levels. (India had raised import duties in July 2022 to curb demand for gold in its domestic market. Nearly all of its gold for jewellery and other requirements are imported.)

What the import duty cut from the 15 per cent to 6 per cent will do is obviously bring down the retail price of gold and jewellery in India. While the estimates vary, jewellery retailers say the duty cut will come to about Rs2,500-Rs3,000 in savings for a shopper buying gold in India.

But that’s nowhere near to curbing the demand from Indian visitors to the UAE, for many of whom it’s a force of habit to buy gold from Dubai’s gold Souq or other jewellery clusters.

“Gold and jewellery buyers from India on visits to the UAE do not make purchase decisions on the basis of price - the domestic rate and that in the UAE - alone,” said Joy Alukkas, Chairman of Joyalukkas Group.

“When shopping in the UAE, they can enjoy benefits like tax-free shopping and access to exclusive jewellery collections. Even when they have to consider variables such as the overall cost of travelling to the UAE, exchange rates etc.”.

Gold price drops

Gold is trading at $2,377 an ounce early today, within days of clearing $2,483 in trading for its latest peak price. The level of volatility gold prices is seeing is unlikely to see much of a change, analysts say.

The UAE gold rate rate for 22K is currently at Dh264.75 a gram, against Dh271.5 on July 24. The gold rate in India for the same is Rs6,400. "Even after the import duty cut, there is still a sufficient difference in UAE and India gold rates, and that's a significant factor for visitors," said Anil Dhanak of Kanz Jewels. 

Many tourists from India will still consider buying in the UAE. The UAE jewellery sector's strengths in craftsmanship, variety, and what it offers as shopping experience will continue to attract tourist spending. So the overall impact from duty cut buyers is expected to be minimal

- Anil Dhanak, Managing Director of Kanz Jewels

Factor in GST

While the import duty element will now be 6 per cent, the retail price of gold - i.e., what the shopper has to spend - in India has to integrate other tax elements. Namely, the GST.

The reduction in gold import duty will rub off on the entire Indian gold and jewellery market, potentially stabilising or lowering gold prices. This will enable India's gold businesses to maintain a larger inventory

- Joy Alukkas of Joyalukkas Group

“Given gold’s current price levels, the import duty benefit has only a marginal impact on the retail price of jewellery in India,” said a gold retailer who has extensive operations in the UAE and India. “The GST (goods and service tax) of 3 per cent on gold is very much plus the 5 per cent on making charges.

“If the shopper makes those purchases in Dubai while on a visit, straightaway, these price advantages are there. (For visitors shopping in the UAE, the VAT costs are reimbursed.)

“Over and above that, there is the currency factor to look into - the Indian rupee is weakening. There is that advantage too when a visitor from India buys gold in dirham or dollar.”

Then there is the CEPA factor

Under the UAE-India CEPA (Comprehensive Economic Partnership Agreement), importers in India can take in a certain tonnage of bullion each year from the UAE at a beneficial 5 per cent import duty.

“Indian jewellers benefit from these concessions, which can include reduced tariffs, making it more cost-effective to import gold for jewellery manufacturing,” said Alukkas. “However, the exact duty rates and product categories covered by CEPA can vary.

“It is crucial to consult the agreement details for precise information on applicable duty rates and products.”

While the UAE does not supply all of India’s gold requirements, the key point here is that these shipments are made at 5 per cent import duty. That hasn’t radically altered the retail prices of gold in India.

Now, with the 6 per cent duty cut, “The price benefit translates into about Rs2,500 to Rs2,800 on a ‘pavan’ (equivalent to 8 grams) basis,” said S. Abdul Nazar, Director at All India Gem and Jewellwey Domestic Council. "I don't think the duty cut has been passed on fully to shoppers as yet. And there are variances in the extent of benefits offered."

The benefits of the import duty cut on India's retail level gold prices are yet to materialise in full.

- S. Abdul Nazar, of All India Gem and Jewellwey Domestic Council

While those details are ironed out, here in the UAE, jewellers are not going to change their strategy on what they should do for shoppers from India. What has worked all these years will continue to help generate higher demand, especially when gold prices turn shopper-friendly.