Turmoil in India over Gold

India’s wedding season is here and the need for gold is expectedly high. This year, however, there are a few issues in terms of purchasing of the yellow metal. Import taxes are high, and it seems smuggling is now on the rise as well.

Import Taxes on Gold

In recent years, the tax on gold imports in India has risen to a painful level. This is making it harder and harder for consumers to justify buying the gold jewelry that they desire during the India wedding season. The Associated Press released an article mentioning this issue: “Gold prices in India, which imports nearly all its gold, have risen 50 percent over the past three years to about 87,000 rupees, or about $1,400, an ounce. Thanks to the new tax and weaker rupee, that’s about a 20 percent premium over the world market price, hovering just under $1,200 an ounce.”

Weddings will still go as planned, but this year the gift giving may be a bit less. No consumer enjoys paying close to $200 above the spot price for an ounce of gold – especially when in recent years, this was never an issue.

Gold Smuggling in India

At the end of the day, the demand for gold in India must be met. With such a rift between what a consumer pays for gold in India and what it’s actually worth, smuggling gold has become a big business. The World Gold Council believes somewhere between 150 to 200 tons of smuggled gold has entered India in 2013. It’s easy to see this is becoming a growing issue, which is only getting worse. In the first seven months of 2013, custom officials seized close to double the amount of smuggled gold that was seized in 2012.

“Though the quantum of seizures has increased, in our opinion, it reflects only 1 to 2 percent of total smuggling,” said a revenue intelligence officer in Mumbai who declined to be named. “Dubai is still the number one place from where gold gets in, and Singapore is slowly emerging. Sri Lanka has become a staging point.”

It’s clear that gold has not performed well in 2013. Many investors may voiced concerns, but with such high demand, gold is definitely here to stay. Traditionally, India has been the world leader of gold consumption – now China is set to take over as the leader. There is certainly no shortage of demand for this precious metal, now or in the future.

Resources: Associated Press, The Star