The demand for gold in India jumped by 37 per cent to 167.4 tonnes during the April-June quarter of 2017 as jewellers rushed to stock up ahead of new taxes that were expected to be introduced with the GST rollout on July 1, according to a World Gold Council (WGC) report released on Thursday.
The demand in the same quarter last year stood at 122.1 tonnes, WGC said in its latest "gold demand trends" report. In value terms also, the demand surged by 32 per cent at Rs 43,600 crore against Rs 33,090 crore in the Q2 2016.
India's demand for gold in the first-half of 2017 rose 30 per cent from a year ago to 298.4 tonnes. However, the demand for gold is expected to come down in the second half of 2017 as jewellers have already built up abundant stocks in their rush to beat the GST deadline.
"Expecting higher taxes, certainly some of the imports and some of the demand from the second-half were advanced to the June quarter," said Somasundaram PR, Managing Director of WGC's India operations. Despite robust demand in the first half, the WGC kept its forecast for India's full-year demand at 650 tonnes to 750 tonnes, lower than a 5-year average of 845 tonnes, but just above last year's level.
Slowing appetite in a country where gold is used a safe haven for investment as well as for wedding gifts could rein in a rally in global prices, trading near their highest level in seven weeks. As part of a new nationwide sales tax regime introduced in July, the goods and services tax (GST) on gold jumped to 3 per cent from 1.2 per cent earlier.
Jewellers have to pay that tax when buying gold imported by banks, which are then passed on to customers.
This leads to an increase in price of the yellow metal which in turn dampens demand. India's gold imports typically strengthen in the second-half of the year as the precious metal is considered an auspicious gift during the festive season of Diwali and Dussehra.
The country's gold demand is expected to remain subdued for a few weeks as "consumers who have recently purchased are unlikely to do so again in the short term", the WGC said. It is feared the tax increase could stoke under-the-counter buying in India, where millions of people store chunks of their wealth in bullion and jewellery.
Gold smuggling into India is likely to rise in 2017 from last year's 120 tonnes as the hike in sales tax has effectively lifted margins for "grey market" operators amid transition to the new tax system, Somasundaram said.