India demonetisation drive to favour big gold jewellery store chains


  • Economy
  • Tuesday, 24 Jan 2017

Gold demand in Singapore in 1993 was at 21.4 tonnes and in Malaysia it stood at 22.4 tonnes. Six years after Singapore implemented the GST in in 1994,and Singapore only recorded 12.1 tonnes while Malaysia raked up 21.1 tonnes - Reuters Photo.

MUMBAI: India's drive to bring transparency to bullion trading, along with the rise of branded gold jewellery, could help major retailers raise their share of the world's second-biggest gold market to 40% by 2020, the World Gold Council (WGC) said.

Somasundaram PR, managing director of the WGC's Indian operations, said on Tuesday Prime Minister Narendra Modi's move to scrap 500 and 1,000 rupee banknotes - a 'demonetisation' crackdown on corruption and tax evasion - will boost larger jewellery retailers' market share from 30% in 2015.

"The issue the industry is facing today is lack of transparency," said Somasundaram, speaking in an interview as the WGC published a report on the Indian gold trade. "This is addressed by demonetisation... Consumers will be forced to pay by cheque or digital payments for large transactions." 

Known as 'organised retailers', firms like Titan Co Ltd, P C Jeweller Ltd and Gitanjali Gems Ltd have seen their share of a traditionally fragmented market rocket from just 5% in 2000 as young consumers switched to branded jewellery.

Many of India's 400,000 jewellers have traditionally sold gold in cash transactions, with small retailers often skipping written documentation in an attempt to avoid paying taxes while people with wealth not recorded in accounting books preferred to buy without invoices or receipts.

More than 70% of the country's gold sales have been in cash up to now. Those transactions, along with a 10% import duty on gold imposed in recent years, have boosted smuggling, Somasundaram said.

Prime Minister's Modi's drastic move - withdrawing bills equivalent to 86% of the value of cash in circulation - will help curb smuggling, the WGC said in its report. Smugglers offered a discount as high as US$100 an ounce in 2016, disrupting the gold supply business.

"The grey market will disappear due to cashless transactions," Somasundaram said. "It will help both consumers and industry in long run." 

In its report, the WGC noted that the government's move to charge lower duty on imports of dore - a semi-pure alloy made by miners - than on refined bullion had boosted refining capacity in India to 1,450 tonnes per year.

However, much of that refining capacity remains unutilised due to limits on sourcing dore, the WGC said, pointing to the prospect of deals within the industry.

"There could be a period of consolidation. Bigger refiners will strengthen themselves by acquiring smaller players," Somasundaram said. - Reuters
Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 0
Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!
   

Next In Business News

Digi.Com proposes change of name to CelcomDigi Bhd
PETRONAS, ExxonMobil to jointly develop carbon capture projects
AirAsia X posts 324% rise in passengers to 337k
Measat inks MoU with Parcel365 and M2B Services on Digital Village365 initiative
HeiTech Padu bags RM38.6mil contract from MOHE
FBM KLCI continues losing streak, down for third day
Oil prices advance on US growth, Chinese recovery hope
Akio Toyoda set to remain a force at Toyota, even as he bows out
Asian FX, stocks rise as strong U.S. GDP data aids risk sentiment
Asian equities hit 9-month high as recession fears wane

Others Also Read