By Anil Mathews

NEW DELHI (Scrap Monster): The provisional data released by GFMS suggests significant surge in India’s gold imports during May this year. The imports surged by four-folds when compared with the previous year. According to the report the gold imports totaled 103 tonnes during the month, considerably higher when matched with the imports of 25.3 tonnes in May 2016. The combined gold imports during the initial five-month period of 2017 were up by 144% from a year ago to 424.1 tonnes.

The key reasons behind the sharp jump in import volume were increased purchase by jewellers to replenish the depleted stock and stock up ahead of the implementation of new tax system under Goods and Services Tax (GST). The gold buying festival of ‘Akshaya Tritiya’ during end-April was marked by robust gold sales, after which gold with jewelers went out-of-stock. The fear of high tax rate for gold under GST prompted jewelers to build up their inventory in May. However, the GST Council recommended tax rate of 3% for gold, much lower than industry expectations. In addition, the temporary gold price correction in May also triggered purchases during the month. The prices had dropped to two-month low during the second week of May, following the outcome of French Presidential election.

According to GFMS, the aggressive build up of inventory by jewellers may result in huge drop in gold imports during the second half of the calendar year, though the period is considered to be the peak gold demand season in the country.

Meantime ratings agency ICRA has pointed out that when matched with the cumulative current tax rate of 2%, the proposed 3% tax rate by GST may make gold more costlier. However, higher tax is unlikely to impact gold demand. However, the making charges, which were previously exempted from service charges, finds no exemption in new tax system and will be charged 18% GST, ICRA noted.

However, jewellers welcomed the 3% GST tax rate, saying that the move would help boost bullion industry. Former GJF Chairman G. V. Sreedhar stated that though challenging at first sight, the reform would turn out to be beneficial for the Indian gold industry. He reiterated that a GST tax rate of 2% would have been ideal. World Gold Council Managing Director, India, Somasundaram PR stated that the reform would bring in more transparency and would also help to improve traceability of transaction. Furthermore, the move is expected to deliver better stability to the industry, Somasundaram said.

The country’s gold demand had surged higher by 15% to 123.5 tonne, as compared with the total demand of 107.3 tonnes during the same period in 2016. The full year forecast for 2017 is projected at 650-750 tonnes. It must be noted that the demand had recorded sharp decline of 21.2% during the entire year 2016.

Meantime, spot gold on Tuesday rose 0.8% to $1,289.20 per ounce as of 0805 GMT. Also, silver hit a high of $17.682 per ounce.