INDIA, which vies with China as the top consumer of bullion, is working on new policies to improve transparency and help expand its US$19bil gold jewelry industry, according to people with knowledge of the matter.
The plans being worked out by the finance and commerce ministries along with industry groups should be finalised by the end of March, the people said, asking not to be identified because they aren’t authorised to speak publicly. D.S. Malik, spokesman for the finance ministry, didn’t answer calls to his cellphone, while a spokeswoman for the commerce ministry didn’t reply to an email seeking comment.
The start of a spot bullion exchange, to make gold supply more transparent and help enforce purity standards, is under consideration, the people said. An import tax of 10% could also be reduced as the government seeks to eliminate smuggling, they said. The plans also include a dedicated bank for the jewelry industry, according to one of the people.
The overhaul of India’s disorganised and fragmented gold jewelry industry is meant to bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Ensuring quality standards and allowing supply chains to be easily tracked are ways to enhance trust. The estimate for the size of the sector was given by the Mumbai-based India Bullion and Jewellers Association Ltd.
The measures could help underpin Indian demand, which is recovering after slumping to a seven-year low in 2016. Consumption is projected to rise to between 850 and 950 tonnes by 2020, from an estimated 650 to 750 tonnes this year, buoyed in the short term by a lower-than-expected goods and services tax to be implemented next month, the World Gold Council (WGC) said last week.
The government fixed the tax on gold at 3%, lower than the 5% feared by the industry, as it replaces more than a dozen domestic levies with a single duty. “The gold supply chain should become more transparent and efficient, and the tax reform could boost economic growth, which we see as supporting gold demand,” according to the WGC, a producer body that advocates for the metal.
Over the medium term, the sector will find it tougher to evade taxes as legal imports go through the banking system, and a full trail will now be established by the new nationwide tax compared with previous duties, which were levied at the state level only, Credit Suisse Group AG said in a note Thursday.
The Indian government is also keen to get the public to recycle its jewelry to reduce the nation’s reliance on imports. – Bloomberg
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