India´s gold refining plants are facing closure following the shortage of imports into the country. Traditionally India is the highest grossing importer of gold bullion bars, but following government restrictions has not purchased any gold in the last two months. The shortfall is supply has decreased gold refining in India by a massive 75 per cent.
In January this year the Indian government raised taxes on gold and platinum imports to 10% and mandated that a minimum 20 per cent of imported gold to be made available to jewellery exporters.
As a result the entire precious metals industry in India is suffering from a supply and driving down prices of scrap metal. Despite September hailing the beginning of the wedding season in India which traditionally sees a huge boost in sales of gold, imports to the country fell by 6.7 tonnes – a massive comparison to the 69 tonnes shipped at the same time last year.
Falling gold prices threatens India gold trade
With global gold prices falling earlier this year, the price for scrap gold used for recycling was in short supply and subsequently crippled local supplies. Harmesh Arora writing for Business Standard commented, “Gold refineries are on the verge of closure due to non-availability of used jewelry.” Converting scrap metal into 24-carat gold at this point is a loss-making process and operations have declined to an all-time low.
Gold prices feel in the second quarter of the year after the announcement made by the US Federal Bank that they were planning to scale back its spending on Quantitative Easing. Although the two incidents appear isolated it appears to be very bad timing from the Indian government to impose one the biggest trades in the former British Colony.
Of course, the official reasoning for the Indian government putting a cap on gold imports was because they wanted to reduce the budget for precious metals so the government can look for alternative investment opportunities. According to French Investment bank and gold bullion dealers Natixis, “Indian authorities’ efforts to reduce the trade deficit are paying off.” Try telling that to the thousands of scrap metal dealers who are on the verge of losing their business!
India´s gold imports
Historically, India has thrived on its gold imports, but since the RBI´s sanctions thousands of employed workers are on the verge of losing their jobs. There is an outcry amongst dealers who say that banks are taking all the gold bullion for themselves as investment policies and not leaving sufficient quantities to make jewellery.
To make matters worse for jewelers, import duties on gold have been raised to 15%. As a result gold sales in India have been unusually slow for September and are 30 per cent lower than this time last year. Is the Reserve Bank of India and their government deliberately trying to cripple an industry?