The World Bank and the International Monetary Fund (IMF) may have written off gold as an investment option but the yellow metal shows no sign of losing its sheen in India.
In 2013, not only did gold prices witness an upward march
to touch Rs 34,600 per 10 grams, the demand also remained somewhat intact.
Steady demand, despite import restrictions, saw gold prices swaying
between Rs 26,440 per 10 grams in April to Rs 34,600 per 10 grams in August.
"Gold will always remain an asset class in India. It will never fetch any negative return. Temporarily, there can be some reverses but in the long term it cannot fade away," Bachharaj Bamalwa, director, All India Gems and Jewellery Trade Federation, told IANS.
Last year, India imported around 960 tonnes of gold. High gold imports
strained India's current account deficit (CAD) which touched a high of 4.8 per cent of the country's gross domestic product (GDP) in 2012-13.
India, being the world's biggest buyer of bullion, imported a record 162 tonnes in May, 2013. This shook the government, which was trying to rein in the huge current account deficit so as not to let the rupee depreciate any further.
> January - Import duty on gold raised by 2 percentage points to 6 per cent
> June - Import duty further raised to 8 per cent.
> August - Third time hike in import duty to 10 per cent
> September - Unprecedented hike in import duty for fourth time to 15 per cent
> September - Reliance Capital halts gold sales and investments in its gold-backed funds
> November - World Gold Council projected overall demand for gold in India for 2013 at 900-1,000 tonnes against 960 tonnes last year.
The government raised the import duty
on gold to 15 per cent. This rise in import duty somewhat stalled gold imports between end-July and mid-October.
"This hiking of customs duty may help the economy in the short run but in the long run it does not because Indians will never stop buying gold. Thus the deficit in gold in the market, arising due to hike in import duty is filled by smuggled gold," economist Siddharth Shankar told IANS.
"Though the current account deficit looks a little better
in the short run, in the long run the parallel economy is booming due to smuggled gold," Shankar added.
Somasundaram PR, managing director, World Gold Council, said: "Gold is considered as a strong asset class and we believe policy direction should aim at easing the regulatory landscape for gold imports, viewing it as a strategic investment asset."
He said demand for gold in India, whether in the form of jewellery or investment (bars and coins), is predominantly retail and is driven by millions of individuals across rural and urban India.
"They invest in gold as part of their household savings. It is important to understand jewellery is considered an investment - not discretionary spending for consumption. It serves as a collateral for lending to a large class of borrowers in certain socio-economic segments," Somasundaram added. "Look at the wedding and festive season in last quarter of 2013. This suggests the demand outlook remains strong and the long term fundamentals of the gold market is intact."FULL COVERAGE: All that made news in 2013
During mid-April this year, the price of gold fell to around Rs 26,440 per 10 grams. But later it again spiralled and now it is hovering around Rs 31,000 per 10 grams.
"Over here, the 80:20 rule imposed by the government was a dampener for the industry," said Bamalwa alluding to a government stipulation that 20 per cent of imported gold by retailers must be exported. "Initially, there was no clarification on this issue which stalled gold import for some time. This led to a rise in smuggling of gold across the country," he said.
As a result, Bamalwa said, 2013 was one of the worst years for the industry in terms of imports mainly due to restrictions on import and the volatility in prices due to steep depreciation of the rupee."
Import duty on gold, which was 2 per cent Jan 17, 2012 is now 15 per cent.
"This year even during Diwali or the festive season the business was not good," Vipul Shah, chairman, Gems and Jewellery Export Promotion Council, said but conceded that the situation was far from the way the alarm bells were being sounded.
Yet, the industry expects the overall demand for gold in India for 2013 is likely to end at around 900-1,000 tonnes against 960 tonnes last year.