Jewellers pin hopes on Diwali

​Hyderabad: After suffering from bleak sales during Akshayatritiya in April, the bullion market is expecting the same adverse condition this festive season Dhanteras and Diwali as well, while jewellers are hoping for marginal recovery in sales this festive season.

High customs duty and VAT are further making the situation even worse for the bullion merchants. Bullion merchants are predicting a possible drop of sales in the range of 30 percent to 40 percent this festive season in the wake of price fluctuation, gold smuggling and yellowmetal-denominated financial instruments.

Speaking to The Hans India, Boorugu Mahabaleshwara Rao, president, AP Bullion Merchants' Association, said: "Several factors are influencing the bullion this festive season.

We had dull market during last Askhayatritiya and it may not be a different scenario this major festive season. Generally, Akshayatritiya, Dhanteras and Diwali contribute the most to the annual sales.

We expect 30 percent to 40 percent drop in sales volume this season. Price fluctuation is very high and frequent.

Adding to this, 10 percent customs duty, one percent excise duty and one percent VAT make the gold costlier for consumers and investors in view of the continuous price volatility."

Rao further said there wouldn't be much impact of recently-launched gold bonds and other financial instruments. “I don't think there's much impact on bullion sales. P

eople are investing in gold bonds, but it may not be 10 percent of what government is expecting from these types of instruments. People prefer real estate, fixed deposits, mutual funds, which offer 10 percent to 15 percent returns.

Perhaps this is also major reason for sluggish gold sales,” said Rao. Industry body Assocham in its latest report stated that the smuggling of gold has been on the rise due to high custom duty, while the industry is demanding a lower levy structure to encourage official imports.

Country's gold imports declined by 58.96 per cent to 270 tonnes from 658 tonnes during January-September 2016 when compared with previous corresponding period, according to the report. Gold imports declined due to a prolonged strike by jewellers and continuation of 10 per cent custom duty on imports.

A bullion merchant, on a condition of anonymity, said that sales were down mostly because of unofficial imports of gold into the country.

High customs duty and VAT translating into price higher by over 13 percent are major reasons for surging unofficial imports, which further dampening the domestic bullion sales.

"Majority of NRIs mostly working in Gulf countries are bringing lot of gold jewellery. Over 13 percent tax benefit coupled with quality is actually the main reason why people in Telangana prefer to get gold ornaments from Dubai during wedding and festive seasons.

This is also one more major reason why sales are not rosy this festive season," said a leading jeweller in Hyderabad. Gold price on Wednesday surged by Rs 215 to Rs 30,715 per 10 grams following increased buying activity driven by the ongoing festive and wedding season demand amid a rising overseas trend.

In line with gold, silver too jumped Rs 100 to Rs 43,000 per kg on increased off-take by coin makers and other consuming industries. Gold prices fell eight percent in July and are currently trading at $1,268.48 an ounce. The prices appreciated by about 25 per cent since January this year so far.

DS Rawat, secretary-general, Assocham said: "Gold is finding a strong support levels in the international markets and is expected to stay above $1,200 mark, as a starting point for the next possible rally.

All in all, given the state of play in equity, debt and properties, gold would stand out for quite some time." World Gold Council (WGC) adds that weddings generate 50 per cent of annual gold demand.

Over the next decade, there are likely to be 15 million weddings per year in India, where more than half of the population is under 25. Based on this data, WGC is upbeat on future sales.

WGC forecasts that the consumption may slip below 650 tons as against its estimation of 750tons to 850tons. India consumed the 1,006 tons in 2010.