Event brings together senior officials and key business leaders
India’s decision to cut gold import duty from 15 per cent to 6 per cent will help reduce the smuggling of the precious metal and its jewellery into the world’s second-largest gold consumer market, said a senior official of the World Gold Council (WGC).
Andrew Naylor, Head of Middle East and Public Policy at the WGC, said the cut in gold import duty by India does “reduce opportunity to arbitrage and incentives to bypass customs duty.”
“This is something we consistently argued not just within India but across the board that excessive duties, unfortunately, do lead to smuggling. So any reduction in that rate plus simplification process should reduce incentives for smuggling,” Naylor told Khaleej Times in an interview.
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Nirmala Sitharaman, India’s finance minister, last month announced a cut in total import duty on gold from 15 per cent to 6 per cent during the Union Budget 2024-25. Gold and jewellery retailers in UAE said that precious metal is still cheaper in Dubai even after New Delhi cut import duty.
Known as a City of Gold, Dubai is a major gold trading partner with India. Dubai is not just popular for wholesale trade, but also quite an attractive place for Indian tourists to buy precious metal jewellery in the emirate.
Gold and jewellery trade between India and the UAE has grown exceptionally over the years, especially after the signing of the Comprehensive Economic Partnership Agreement (CEPA) in 2022.
Naylor added that the CEPA route for gold is still the most cost-effective way to import into India from the UAE.
Chris Weston, head of research at Pepperstone, said India's move to cut gold import duty adds a secondary layer of potential real demand for the yellow metal.
Andrew Naylor said the duty cuts by India do level the playing field somewhat when it comes to jewellery market tax differentials.
“From a tax point of view, it will be cost-effective buying here, but that differential has gone down. That could have an impact,” he said, adding that conversely, there could be a rise in consumption of gold jewellery in India. Since UAE provides a lot of feedstock to jewellers in India, this will benefit the Dubai market as well.
“Overall, we expect jewellery demand to be fairly flat given high prices. We don’t see that changing as the market is looking for catalyst and that is going to come through in September when the US Federal Reserve is expected to cut rates,” he said.
According to World Gold Council, record gold prices weighed heavily on Indian gold jewellery demand in Q2 as demand it fell 17 per cent year-on-year to 107 tonnes – the weakest second quarter since the Covid-stricken Q2 2021. The first half of 2024 demand of 202 tonnes is the lowest since 2020. Despite the sharp decline in demand, the domestic economic environment remains healthy.
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