NEW DELHI: The local Indian physical gold market community is discussing rumors this week that the government may look to further tax cheap imports of Indonesian jewelry in order to assist the local market.
Platts has been reporting recently that the already slack local market is being further dented by a free trade trade agreement between the Indian and Indonesian governments giving a tax break on gold jewelry imports.
India is the world’s number two gold consumer and relies almost 100% on imports of bullion to feed demand.
The reason being that mining of the metal is near nil in the country.
One source in Delhi said the situation was weighing on the local market, which is already under pressure from the seasonal lull.
India’s finance ministry and foreign trade departments are in discussions over renegotiations of its FTA with Thailand and ASEAN countries, including Indonesia, which currently benefit from import duties as low as 1%, according to sources.
In May, gold jewelry imports at 1% duty jumped to 6,000 kg from 400 kg in January, according to government data.
Imported jewelry can then be melted down and sold to the local market as gold bars at a discount, according to sources.
Importers of gold bars, or dore, from countries outside the FTA, typically pay 9-10% import duty.
Jewelry imports from Indonesia currently incur a duty of 1%, according to local sources.
“Things may change soon as now customs is asking for for a bank guarantee equal to [around] 16% duty instead of [the previous] bond [requirement]. What we have heard from the market is that [Indonesian] importers are reluctant to give [this],” said the source in Delhi.
He noted that around 200 kg of Indonesian jewelry is reportedly sat waiting to clear customs in Hyderabad.
The source said that on Thursday gold bullion sales were taking place at a discount of $6-7/troy oz to the international dollar spot price.
A source in Mumbai said that, with a discount of $8, he was seeing decent sales.
Regarding rumors of government intervention in the jewelry market, one importer said it would be a “good step” for the local market.
A source in jewelry hub Ahmedabad said that since the tax break is a trade agreement between the two countries resolution may be harder than the market wishes for.
“The government will bring in a law very soon so that all future free trade agreements will exclude jewelry/gold,” he said.
He noted that this could see a higher duty level for the currently cheap imports.
“This will see all imports attract the same duty,” he said, indicating a more even playing field.
“The high discount being seen for refined bullion is mainly due to cheap imports from Indonesia,” added the source in Ahmedabad.
The London Bullion Market Association Gold Price settled Thursday afternoon at $1,165.25/oz.
