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View: Changes the gold consumer can expect from Budget

View: Changes the gold consumer can expect from Budget

View: Changes the gold consumer can expect from Budget
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By CNBCTV18.com Contributor Jan 31, 2022 8:04:24 PM IST (Published)

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The government should focus on educating the general public about the ill effects of buying the yellow metal in physical form, writes Mahendra Luniya of Vighnaharta Gold.

Gold worsens India’s current account deficit every year with the 800-900 tonnes of imports annually. Our saving habits have a deep rooted role to play in this. People in the country definitely save a lot of money but invest in traditional investment products such as fixed deposits, real estate and gold. Gold purchased and placed in the locker by the consumer does not contribute to the economy, and is no good for the country in the long run.

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The government is planning to digitalise and mobilise traditional investments in gold.


The introduction of the gold monetisation scheme in 2015 and the launch of a series of sovereign gold bonds (SGBs) have laid the ground work of changing the investment habits of the consumer.
The gold monetisation scheme was launched with the idea of getting gold lying idle in households to a productive use by way of issuance of certificates against deposits with the government. But the product hasn’t lived up to the expectations because it involved melting of the deposited jewellery.
On the contrary, SGBs, wherein investors can buy gold online in a unit equivalent to one gram of the yellow metal, have worked wonders on reducing the new physical purchases by approximately five tonnes per subscription. The interest that SGB investments would earn and the liquidity have led to a small but radical change in the mind of the consumer around gold investments.
The government should now focus on educating the general public about the ill effects of physical purchases and advertising the current products in order to reach a larger audience. Benefits of the digital options need to be better conveyed to the gold investor. The Budget can introduce a few new products to work towards narrowing the current account deficit.
To give a greater push to the idea of getting gold investments to a productive use, we expect the government to launch something similar to a gold savings account, with an interest rate of around 2.5 percent, close to that of the SGBs, but will reach a larger consumer base. Banks also share a special communicative bond with the depositor and can promote the new digital gold saving habit easily.
Another big step in the direction of discouraging physical purchases can be reducing the limit set for PAN card purchases. The current regulation states that any purchase above Rs 2,00,000 mandates the jeweller to document the PAN number of the purchaser. This limit can be reduced to Rs 1,00,000 to enable the monitoring of a greater portion of the purchases.
The pandemic has adversely impacted the jewellery market. With gold prices soaring and consumers shifting focus to health and other needs, the demand for jewellery seems to have dried up. From the budget, the jewellers expect the government to support a recovery of the sector post-pandemic with reduced GST rates. The All India Gem & Jewellery Domestic Council has demanded a reduction in the GST rates from the current three percent to 1.25 percent.
In the last Budget, the government had slashed the import duty from 12.5 to 7.5 percent with an aim to reduce the illegal imports of gold. From the upcoming Budget, jewellers want additional support around import duty and expect the government to consider a reduction to 4-5 percent.
With mixed expectations, it will be interesting to see how the Budget comes up to cater to the demands of the various people.
--Mahendra Luniya is Chairman of Vighnaharta Gold. The views expressed in this article are his own.
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