Over the past year and a half P. Chidambaram, India’s finance minister, has been fighting his country’s insatiable appetite for gold.
Gold import duties have risen tenfold – from 1% at the start of 2012 to 10% today – and excise duties stand at 9% while new rules such as strictly cash only for imports and transaction taxes among other punitive measures have stymied India’s gold industry.
The sub-continent celebrated Dhanteras and Diwali this month, two festivals closely associated with bullion buying and the country’s wedding season, another major driver of gold sales, which is in full swing.
But the government import restrictions have led to a scarcity of physical gold inside the country which coupled with the weak rupee are putting a huge damper on sales of gold this year.
While Indian traders are paying premiums of a whopping $130 an ounce to London prices, families are finding other ways to get their hands onto new gold.
Zee News reports with gold scarce, wedding buyers have been forced to recycle jewellery:
“In this wedding season, since there is no gold available in the market, people have started coming with recycled gold. They have started exchanging the old gold for new and pay the labour charges,” said Kumar Jain, who owns a retail gold shop in the Zaveri Bazaar.
Jain expects about 400 tonnes of recycled gold to enter the market this fiscal year to March 2014, compared with normal rates of about 130 tonnes, according to Thomson Reuters GFMS data.
According to some estimates Indian households are hoarding 18,000 – 20,000 metric tonnes of gold worth some $900 billion at today’s prices, representing almost 50% of the country’s GDP.
Indian households own 11% of the global total and it is estimated that 7% – 8% of India’s 329 million households held their savings in gold in 2009 – 2010.