Duties fail to make dent in gold imports

Chennai: Despite the government increasing duties several times since 2012, India officially imported around 6,581 tonnes of gold in the past decade.

Imports accounted for 86 per cent of the consumption in the past five years. Recycling accounted for 13 per cent and mining, just 1 per cent of the gold supply.

With very little mining and modest levels of recycling, India is heavily reliant on bullion imports to meet its domestic demand, says a report by the World Gold Council.

Indian official imports continued to grow despite high import duty, with official imports averaging 760 tonnes per year since the first duty hike in 2012. The higher import duty has led to an increase in unofficial imports with states in the east, north-east and south becoming main channels for gold smuggling. Gold smuggling also has shifted away from sea in favour of air and land routes.

The last decade also saw a rise in doré shipments due to lower duty on it. In the last five years, gold doré imports made up 30 per cent of total official gold imports. With lower duty on gold doré, its share in gold imports has increased from 11 per cent in 2014 to 29 per cent in 2020.

The duty benefits also led to a rapid expansion of refining capacity in India, with the number of refineries growing from three in 2012 to 32 in 2020. Active refineries now have a combined refining capacity of 1,200-1,400 tonnes. Of these, 23 refineries imported doré in 2020 and the top five refineries accounted for more than 70 per cent of India’s doré imports.

“The gold demand in India is heavily dependent on bullion and doré imports. Bullion industry has developed over the last three decades in India with significant addition to organised refining capacity and an LBMA accredited refinery. Challenges rem-ain, however, on doré sourcing and organised trading, which act as barriers to a more active role for banks and bullion trade in global trading and price setting. High taxes on bullion continue to be a strong incentive for the grey markets that constantly undermine all reforms to make gold liquid and mainstream,” said Somasundaram P.R., regional CEO, India, World Gold Council.