Gold demand in India set to recover in 2021

New Delhi: Demand for gold among Indian consumers is likely to recover in 2021 on the back of the lower import duty among other announcements made in the Union Budget for FY22, said a World Gold Council (WGC) report.

Apart from reducing the import duty on gold, the government also proposed to authorise the Securities and Exchange Board of India (Sebi) as regulator for domestic gold spot exchanges. The Budget also proposed establishment of welfare schemes for rural areas designed to boost incomes, which according to WGC would indirectly help revive the gold market.

"We believe India's gold market will not only benefit from these reforms but will also indirectly benefit from the various rural welfare schemes announced in the budget. With a revival in the economy and these positive budget announcements, Indian gold demand looks set to recover in 2021 from its 2020 lows," it said. It noted that a lower customs duty may also increase the headwind for gold smuggling.

Unofficial imports fell by a whopping 80 per cent in 2020, to 20-25 tonne, due to logistical disruptions caused by Covid-19, and may be further impacted in 2021 with ongoing flight restrictions and lower customs duty. With import costs falling, official inflows in 2021 could be spurred, said the report.

Lower customs duty and recovering demand may allow official imports to gain strength at the cost of unofficial imports, although the 14.07 per cent duty continues to make the grey market attractive, it said. Further, as per WGC, the gold industry in India has reacted positively to the recent budget announcements.

"Rumours had previously been circulating that customs duty on gold might be increased rather than decreased. Consequently, the lower import duty is viewed as a boost to gold demand and a headwind for unofficial imports," it said.