The industry tracker GFMS says gold imports during the first nine months of 2016 has registered a dramatic fall of 59 percent in terms of quantity vis-a-vis the previous year, giving rise to the presumption that for the complete year the economy would manage with just 400 tonnes of imports from the earlier dizzying levels of 1000 tonnes per year that was a huge strain on our precious forex resources.
Gold indeed has been the pain in the neck for the policymakers and the government, with gold imports being second only to crude oil imports. India produces zilch with gold reserves under the mother earth drying up long ago. It is not as if it had something to do with the Indian women’s penchant to bedeck themselves in jewellery. Rather it is now becoming clear that it had a lot to do with investment of black money in a safe haven. More on this later.
The harried Indian government had tried everything in its bag to discourage the import of this arguably non-essential item. Import duty was hiked to 10 percent. Gold Monetization Scheme, Gold Bond scheme etc were introduced, the first to recycle the estimated huge stock of around 20000 tonnes of gold resting in bank lockers as well as with households and the second to wean away people from physical gold to paper gold. But none of these worked.
What seems to have worked rather serendipitously is the government’s relentless fight against black money. To be sure, gold is not the only place to hide black money but the government’s resolve to take it head on seems to have paid off. TCS on gold purchases in excess of Rs 2 lakh in cash and the mandate to quote PAN to jewellers seem to have fluttered the dovecots of the black moneyed people. Add to this the mainstreaming of the gold trade through excise of 1 percent and bringing in gold and jewellery into the GST net. The writing on the wall thus was unmistakable. It looks like the black moneyed people are in no mood to tangle with the government.
Some people say with reason that it is a tad premature to rejoice because 2016 happens to be the year when the jewellery traders went into a 6-week long shut down in protest again the government’s attempt to mainstream it. It also happened to be the period when the gold prices were bullish and the income levels were down resulting in poor purchasing capacity. But the fact that even after good monsoons and recovery in purchasing power, there is no let up in the declining trend in gold demand which shows that the fascination for yellow metal is petering out.
In years to come therefore the government can disband gold monetization schemes etc which like tax amnesty schemes have simply not worked.
Parenthetically, it must be mentioned that gold is one item that is susceptible to smuggling and who knows with the hiking of import duty, the imports might be taking place through subterranean channels. But then with the mainstreaming of the jewellery trade this option too would become untenable sooner than later. The government however should ensure that the baby is not thrown with the bath water.
After all, gems and jewellery exports account for a substantial part of Indian exports. The industry must be kept going.