Why are Indians losing their love of gold?
Gold purchases by Indians halved in the first and second quarters of 2016 against a backdrop of policy changes and higher prices.
Gold loses shine
Recent government data shows that India’s expenditure on ‘valuables’—gold, silver, diamonds and so on—halved in the April-June quarter, from a year ago. This fall comes in the backdrop of three policy moves: a requirement in January that mandated consumers to furnish their Permanent Account Number (PAN) for purchases above Rs2 lakh; a 1% excise duty on non-silver jewellery introduced in Budget 2016 on retailers, which prompted them to down their shutters for 42 days; and a gold bond scheme that essentially converted physical holdings of gold into an interest-bearing financial instrument.
Gold imports take a beating
But these domestic policy changes don’t entirely explain this fall. Even gold imports, led by bullion (bars, coins, and so on), have plunged in the first two quarters of calendar 2016, lowering the government’s current account deficit.
Decline in domestic demand, but no change in its composition
Domestic consumer demand, too, has dropped sharply. But the composition of this demand has not changed. The share of jewellery—as opposed to bars and coins—has remained stable at 75-80%. In other words, both segments are seeing a pullback.
Higher prices
Affordability could be another factor in the overall pullback. Gold prices have been rising, more so in India because of exchange rate dynamics.
Also Read: Global gold prices set to get Indian festive season boost
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