GST headwinds for gold jewellery sector but high price may impact demand
Imposition of the Goods & Service Tax has changed the way gold was traded in India. Prima facie, it has helped large gold chains to grow, the industry is consolidating and small jewellers have opted several other ways to retain customers and business.
However, challenges still exist for jewellery industry as demand will be impacted due to high price, under pressure jewellers finances and rising cost. Hallmarking will lead to the churning of inventory.
The immediate impact of GST was felt with rising unofficial or smuggled gold import. According to GFMS, a metal research unit of Thomson Reuters, gold survey-‘18, “unofficial imports Increased in 2017. Our estimate is that 134.5 tonnes were smuggled into the country last year, ten tonnes higher than 2016."
Overall, GST has resulted in the reduction in cash transactions. The increase in smuggled gold import is also surprising because gradually trade has been shifting to digital and card payment. Considering unofficial import with the official import of 880 tons, India is back to 1000 tons annual gold imports. However, of the 880 tons, deducting for exports, net official import for domestic market was 663.3 tons.
Last year, the government had announced several regulatory measures for jewellery trade and the ban on cash transaction beyond Rs 200 thousand. It had an initial impact with jewellers started offering lightweight jewellery studded with precious stones to make them look heavy. Later, consumers and jewellers found the way out.