By Aparajita Gupta, New Delhi, Aug 24 IANS | 4 months ago

Despite the possibility of deficient monsoon casting a shadow on the rural demand, riding on overall better sentiments gold is expected to recover its sheen in the second half (July-December) of the year, Somasundaram P.R., managing director (India), World Gold Council said.

"The second half will be a better one as compared with the previous year. The first half (January-June) was affected by the 80:20 rule on exports and expectations that there will be a duty cut.

"People were hoping that the price will get back to the Rs.25,000 (USD 413) per 10 grams zone. Then there was election till the second quarter (April-June), which did have its own impact on demand. There were also a lot of operational issues for the trade," Somasundaram told IANS in an interview.

The price of the yellow metal is now hovering at around Rs.28,000 per 10 grams. In 2013, the price swayed between Rs.26,440 per 10 grams in April to Rs.34,600 per 10 grams in August.

Now, with budget for 2014-15 presented, people are not looking at a date for a duty cut, Somasundaram said, adding: "It has now receded in the minds of the consumers as priority."

In 2013, the government progressively increased, from six percent to 10 percent, the import duty on gold while the Reserve Bank of India imposed the 80:20 rule, which mandated that at least one-fifth of imported gold must be reserved for re-export. These measures were taken to rein in the huge current account deficit so as not to let the rupee depreciate any further.

The total demand estimated by the World Gold Council in India in 2014 is between 850 and 950 tonnes compared to 974 tonnes in 2013.

The demand in the first quarter and second quarter of 2014 was 210 tonnes and 190 tonnes respectively. The second half is expected to see a demand of 450 tonnes.

Since the 2013 measures, Somasundaram said, the grey market or smuggling activities are on the rise in the country.

"Last year, the grey market was 150-200 tonnes; this year we believe it will be upwards of 200 tonnes," he added.

He said by sharply increasing the import duty on the yellow metal, which was open for around 20 years before that, the government was creating social as well as economic problems. "You (government) are creating a social problem and an economic problem because you are losing taxes and you are strengthening a network (black market) which should not be strengthened."

On the 80:20 rule, he wondered: "Has it really increased exports? Has it improved Brand India? The prime minister is talking about Brand India. What can be better than jewellery? And hand-crafted Indian jewellery is the best."

"Why can't we increase exports on our own? Why do we need a regulation like this? Swiss watches no more have utility value; still we buy them because they are hand-made and have brand value. We need to drive Brand India through jewellery exports rather than through this 80:20 regulation. It is not leading to the desired results of re-exports."

Talking about the low monsoon rains' impact on rural customers, Somasundaram said it would definitely have some impact on the gold demand. "Rural demand is an extremely important part of gold. It is being expected that monsoon will come back to normal but with overall rural savings coming down, the 7-8 percent of household savings that go to gold would impact its demand to that extent."

In 2010 it was estimated that two-thirds of the gold stocks were in rural India. "People come all the way from rural areas to the urban areas to buy gold. The rural demand is pretty high because it is a cash economy and tax-free income."

Asked about his outlook on the gold price, he said: "In the first half, prices have been rangebound. We see that trend continuing for the next few months (till December), if no other development takes place. As we scan the horizon, there are no significant reasons that could increase the price."

(Aparajita Gupta can be contacted at aparajita.g@ians.in)

(Posted on 24-08-2014)

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