Gold imports surge 236% to $5 billion in May ahead of GST
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New Delhi: Apprehension of higher goods and services tax (GST) rate and an increase in demand led to a surge in India’s gold imports by 236.7% to $5 billion in May, causing the highest level of trade deficit in two and a half years.
This is the fourth consecutive month since February when gold imports have more than doubled compared to the same month a year ago.
Gold in India is traditionally seen as a storage of wealth by buyers, while the government considers it unproductive as it leads to idle savings rather than investments.
Aditi Nayar, principal economist at ICRA Ltd, said half of the upsurge in merchandise imports in May was led by gold, precious metals and stones, which is likely to be on account of restocking after the festive and marriage season, and prior to the implementation of GST.
Since there was a lot of uncertainty on the GST rate for gold with jewellers apprehending the rate to be 5%, experts said importers may have preferred to stock gold and gold imports are likely to taper off as the GST Council has decided to impose a moderate 3% GST on gold items.
Pankaj Parekh, former vice-chairman at the Gem and Jewellery Export Promotion Council, said the surge in imports is because of an increase in consumer demand as the price of gold is now within the affordable limit of Rs28,000 to Rs29,000 from Rs32,000 three to four years back.
India is the world’s second largest gold consumer after China, with consumption of 674 tonnes in 2016. Demand is projected to rise to between 850 tonnes and 950 tonnes by 2020 from an estimated 650-750 tonnes in 2017 buoyed by the new GST regime, according to the World Gold Council.