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‘Tax tweak, farm income boost may lift gold demand’

Demand for gold last year had dropped by 9 per cent from 2018 to 690.4 tonnes .

, ET Bureau|
Last Updated: Feb 03, 2020, 12.17 PM IST
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"These measures will boost gold consumption in both rural and urban areas. Return of rural demand is important for all businesses," said Surendra Mehta, national secretary, India Bullion & Jewellers Association.
Gold traders are upbeat that the measures proposed in the Budget to boost farmers' income and reduce taxes for the middle class will boost demand for gold jewellery.

Demand for gold last year had dropped by 9 per cent from 2018 to 690.4 tonnes due to high price of the metal.

In her budget speech on Saturday, finance minister Nirmala Sitharaman laid down a 16-point agenda to double farmers' income by 2022. She also announced a new tax regime under which individuals foregoing exemptions and deductions will be taxed at a reduced rate. This new tax regime, which is optional, is likely to generate more cash in the hands of the middle class.

"These measures will boost gold consumption in both rural and urban areas. Return of rural demand is important for all businesses," said Surendra Mehta, national secretary, India Bullion & Jewellers Association (IBJA).

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Rural India accounts for 60 per cent of the country's gold consumption.

Somasundaram PR, managing director, India, World Gold Council, said, "Focus on the next wave of digital revolution will add impetus to digital gold products."

Also, the boost that the government intends to give to the MSMEs sector could tremendously encourage development in rural areas, which in turn will encourage growth, said Jignesh Mehta, founder and managing director, Divine Solitaires.

However, the demand for jewellery studded with rubies, emeralds and sapphires and other coloured gemstones may slow down, as the Budget has proposed to impose a 0.5 per cent basic customs duty on these uncut stones, which at present can be imported tax-free. This rise in import duty of rough coloured gemstones could upset export of gemstones from Rajasthan, the hub of coloured gemstones processing which employees around 150,000 workers.

The industry has also lauded the government's decision to set up an international bullion exchange at GIFT City.

Tapan Ray, managing director & group CEO, GIFT City, said this will lead to better price discovery of gold, create more jobs and enhance India’s position in the bullion market.

Gem & Jewellery Export Promotion Council (GJEPC) was of the view that initiatives like invoice financing, working capital and debt financing by banks and NBFCs, raising the threshold for audit from ₹1 crore to ₹5 crore will address the existing demands of the gem and jewellery sector, and will also give a push to the sector.

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