Dubai: In a major push, India has widened the scope of those who can benefit from the 1 per cent lower import duty on gold from the UAE, effective immediately. Apart from gold manufacturers and retailers, these imports can also be accessed by bullion traders in India – a move which could immediately lead to higher demand for gold from the UAE.
This means from now on gold traders too will benefit from importing their requirements at 14 per cent rather than the 15 per cent charged on shipments from other countries. A 1 per cent duty cut translates into a saving of $17-$20 an ounce, according to gold traders.
What this does is allow more of India's gold industry players to source the metal at a lower cost from the UAE. This is where the level playing field comes in.
The timing of the announcement by the Indian government says a lot, coming as it does just ahead of the first anniversary of the May 1 CEPA (Comprehensive Economic & Partnership Agreement) deal coming into effect. It was with India that the UAE entered its first CEPA trade and investment agreements, and these 12 months have seen decisive breakthroughs in transaction flows across sectors.
The UAE is the second biggest source market for India's gold needs after Switzerland.
The gold trade was seen as one of the biggest category winners from the UAE-India CEPA. Last year, the quote of gold imports into India from UAE was set at 120 tonnes, and rising to 140 tonnes for the current financial year.
“The latest decision will mean a level playing field as India’s bullion traders too can benefit from the duty cut on UAE imports,” said Shamlal Ahamed, Managing Director for International Operations at Malabar Gold & Diamonds. “What this does is ensure that all of the 140 tonne quota this year could be taken up.
“Also, by involving bullion traders to bid for this, it would create a significant secondary market demand for UAE bullion in India.”
5% annual quota rise
Under the CEPA agreement, India's gold market can import bullion from the UAE under the 1 per cent duty cut for the first 5 years. And each year, the quota will be increased by a certain percentage. In the first year, the allowed imports from the UAE was 120 tonnes of gold, and now it becomes 140 tonnes.
Of the 120 tonnes last year, only 20 per cent was actually utilised. "That's because gold was available at $30-$40 an ounce lower premium from 'parallel sources'," said Ahamed. "And because the quota was open only for jewellery manufacturers and retailers, the demand was lower. Now, with bullion traders too allowed, the full benefits for India's gold trade will start to shine through.
"India is starting to effectively place curbs on parallel imports of gold - this is being reflected in the market. It will also see the need for official imports, and the UAE bullion suppliers will gain from this."
This decision by India Govt. means everyone gets an equal opportunity to bid for the annual gold import quota from the UAE. It will definitely create higher demand for UAE gold at lower import duty
Need to bid again
Indian authorities have as part of the latest decision cancelled the allotments made on the previous bids. Instead, they will call for fresh bids to be submitted under the revised quota scheme.
The changes also reflect the tweaking that India is doing to the CEPA provisions and get the best possible benefits from it. The UAE dropped its 5 per cent import duty on multiple categories from India. As for UAE shipments to India, a range of duty cuts have been done by India, with that for gold trimmed by 1 per cent.
CEPA helps both ways
"UAE-India CEPA covers 11 service sectors and over 100 sub-sectors," said Joy Alukkas, Chairman and Managing director of Joyalukkas Group. "I believe trade between the two countries increased by 10 per cent after the signing of the agreement.
The deal has made it easier and more cost-effective to source a greater amount of jewellery from skilled artisans and suppliers in India.
"The removal of the 5 per cent import duty by UAE on finished jewellery from India has definitely had a significant impact, with an increase in the export of gems and jewellery from India by 8.26 per cent in the last financial year."
UAE-India CEPA is clearly delivering results...
Another trend is also in play.
More of India's mid-scale jewellers are launching retail operations in the UAE, seeking to benefit from the CEPA provisions covering the precious metals trade. "UAE's removal of 5 per cent import duty on jewellery from India has been the major contributor to this rise in small or mid-sized Indian firms opening a retail presence here," said Abdul Nazar of the All-India Gem & Jewellery Domestic Council.