Joy Alukkas says the UAE will be one of the biggest gainers from India’s decision. Image Credit: Virendra Saklani/Gulf News

Dubai: India’s sudden hike in gold import duty by 5 per cent will not do much to shackle consumption in the second largest market in the world for the metal. That’s according to Joy Alukkas, Chairman and Managing Director of the jewellery brand that carries his name.

“Domestic gold shoppers will adjust after a while to the hike, which now takes gold import duty to 15.5 per cent,” said Alukkas. “It’s not going to stop India’s consumers from picking this metal or jewellery. If they can’t buy in India, they will do so elsewhere.

“Yes, UAE will be one of the biggest gainers from India’s decision, because the price difference between here and buying in India has gone up to 15-18 per cent. But all other places - whether it’s the UK or Singapore - Indian tourists will be free from VAT. They are only paying the price of gold to take back home.

“The duty increase only makes just about every other Indian traveller into a gold buyer. It will not reduce India’s consumption.

“The other fear is that great market activity involving gold could pick up significantly. India’s customs and enforcement authorities will have their work cut out.”

Curb on dollar flows

India’s gold imports during the 2021-22 financial year picked up a bill of $46.14 billion compared with $34.62 billion the year before. With inflation kicking in, the rupee likely on its way to hitting 22 against the dirham, India has a need to preserve its dollar reserves. The gold import duty hike was done with an eye on that, with inward gold shipments during May alone rising by a staggering 790 per cent. (The other big import expense for India - oil imports - has been compensated, with the country paying for Russian imports using the rouble.) The Indian shoppers’ need for gold has escalated after a barren 2020 when Covid and lockdowns ate into the buying. “So far, this year has been good for gold and jewellery buying in India,” said Alukkas. “Everything pointed to more demand during the next Indian wedding season from October. Initially, the 5 per cent additional duty may have consumers thinking, but not too long.”

A lot also depends on whether gold traces a lower trajectory in the commodities market. In recent days, bullion slipped below $1,800 an ounce and is currently at $1,740, the lowest for the year. (A good monsoon will also have its contribution to make in deciding how much Indians will end up spending on gold this year.) With all those overseas trips, it will be interesting to see by April-May next as to how much India’s gold import bills came to for the current financial year, which ends March 31. “The other big category Indians are spending on is overseas travel,” said Alukkas. “All outbound tours are busy and if gold shops in India report drops, it will be compensated by buying abroad.

“India seems to be the sole important global market that has duties on bullion imports. This is an industry supports hundreds of thousands of workers, at stores, the designers, the craftsmen, etc. Ideally, the government should have considered dropping the duty, even from the earlier levels.”

An Indian habit that will stay on

Ramesh Kalyanaraman, Executive Director, Kalyan Jewellers Image Credit: Supplied

“Gold is one of the most preferred investment options for Asians - the price has consistently increased in value for customers who have looked at it as a liquid asset. The hike in India’s import duty will reflect in the price for customers. Such hikes usually have little to no impact on customer sentiments, especially because the budgets for these discretionary spends are pre-decided,” said Ramesh Kalyanaraman, Executive Director, Kalyan Jewellers.

“We are expecting an increase in overseas demand for gold jewellery from NRIs in the Middle East. However, when it comes to visiting tourists, there are limitations on how much can be brought back to India. With strict surveillance in place, we don’t foresee an exponential increase in demand from this niche consumer segment.”