Gold doré is a semi-pure alloy of gold and silver that is usually produced at a mine and then transported to a refinery for further purification. Why is gold so important for an import-led impoverished India, which ranked 111th out of 125 countries on the global hunger index 2023, with a score of 28.7 on a 100-point scale. As of December 2023, India ranked 129th out of about 200 countries in the world in terms of GDP per capita although the country’s overall economic output is substantial, fifth in the world's GDP rankings in 2024.

Gold and gold doré constitute the second most valued item of import after petroleum in India. Effectively, India ranks third in the world gold import after China and Switzerland. The latter imports gold mostly for export. Switzerland is the world’ largest gold exporter, accounting for 25 percent of the world gold export, followed by the UK, US, UAE and South Africa. While India’s crude oil import bill in 2023-24 was $132 billion, its gold import accounted for well over $45 billion. The country is 86 percent import dependent on oil.

India’s merchandise trade deficit was $240.17 billion, last fiscal. China can import as much gold as it wants as it boasts the world’s largest trade surplus by any country. Last year, China's merchandise trade surplus was around $823.2 billion. Gold import has little impact on China’s foreign trade and the stability of its domestic currency, Yuan. China is also the world’s largest gold producer. As of last July, China produced 370 metric tons of gold, followed by Australia (310 mt) and Russia (310 mt). In 2023, India produced only 780 kilograms of gold.

Gold plays little role in India’s economic growth. The People’s Republic of China, including Hong Kong, is the world’s largest gold importer. China's per capita GDP in 2023 was around $12,514, according to Statista. The World Bank records China's GDP per capita at $12,174 in 2023, which is 96 percent of the world's average. According to Trading Economics, India's gross domestic product (GDP) per capita in 2023 was $2,239.25, which is 18 percent of the world's average. This is the highest GDP per capita India has ever recorded.

It is somewhat bewildering why the import of such large quantities of gold is so important for India and for whose benefit. There is little to argue in favour of low duty gold import in India for the benefit of the country’s rich and the upper middle class. They continuously buy gold to partly protect the value of their wealth in the face of dwindling value of the domestic currency, Rupee, in the face of inflation, negative trade balance and rising government borrowing. In the last quarter of the 2023-24, jewellery accounted for 95.5 tonnes of India's total gold demand of 136.6 tonnes, which was a four percent increase over the previous year. In May 2024, wedding jewellery made up 60 percent of the Indian jewellery market, while daily wear jewellery made up 30 percent.

Interestingly, cheaper gold import was a key focus of the current financial year’s national budget. This appears to benefit more the local gold traders than gold jewellery consumers for whom the budget claimed to have intended the import duty reduction. Not only that the trade did not pass on the benefit to the consumers, the last mid-week price of 22k jewellery grade gold jumped sharply by Rs.800 to Rs.64,000 per 10 grams. The price of 24k gold surged by Rs. 870 to Rs.69,820 per 10 grams. The traders defended the cause of higher gold prices on soaring geopolitical tensions, as if they did not exist or remained subdued during the India government’s annual budget preparation session, less than three weeks ago.

The trade is controlled mostly by Gujarati merchants, based in Mumbai and Ahmedabad. Exactly two years ago, the prime minister launched the country’s first international bullion exchange (IIBX), based at the Gujarat International Finance Tec-City (GIFTEC) in Ahmedabad. Higher domestic gold prices are unlikely to have any impact on the country’s growing gold import and consumption although the government will wilfully lose a good amount of revenue from the sharp import tax deduction.

Other than the country’s rich bullion traders, the sharp import duty cut for gold and gold doré has been most welcomed by major gold exporters to India from Switzerland, the UK and the UAE, among a few others. The government has reduced the tax rate and holding period for long-term capital gains on gold from 36 months to 24 months. The rate of long-term capital gain has been reduced from 20 percent with indexation to 12.5 percent without indexation. This proposal is applicable with effect from 23 July, last. Gold ETFs and mutual funds have been recategorized. Profits on gold ETFs (exchange traded funds) and mutual funds will no longer be taxed at the short-term capital gains rate if held for at least 12 months. The country’s gold trade and those gold exporters to India expect the combined effects of these changes to add at least 50t to gold demand in H2 2024.

It is surprising that even those leaders of the 26-party opposition combine – The Indian National Development Inclusive Alliance (I.N.D.I.A.) – are yet to question the ruling NDA government’s intention behind the massive import duty cut for gold, taking a hit on the government revenue to benefit a handful of large gold traders in Mumbai and Ahmedabad. The gold import will further reduce the value of Rupee and support the trend of consumer price inflation pinching the poor man’s pocket. Ideally, the government should try to restrict the import of gold by raising tariffs and the sale of gold bars and biscuits for the benefit of the rich. The government’s push for gold import remains rather enigmatic under the country’s current economic condition. (IPA Service)