Later, however, the GST Council reduced the levy to five per cent GST on job works, which brought a big relief to the entire jewellery sector. Also, the government scrapped PMLA notification for jewellery sector before Diwali, which boosted jewellery sales this festive season. However, before this, India's gold demand from jewellery sector declined by a sharp 25 per cent to 114.0 tonnes for the July- September quarter of 2017 as against 152.7 tonnes in the comparable period last year.
"After three consecutive quarters of growth, jewellery demand fell sharply in the July-September quarter. The drop can be attributed partly to some advance buying in the April-June quarter to pre-empt the introduction of GST in Q3. However, with the industry's gradual transition to GST proceeding on expected lines, and the removal of AML legislation, demand during the festive season seems to show a clear sign of recovery in the October-December quarter. This is also underpinned by the faster growth in imports ahead of demand and price factors in the market," said Somasundaram PR, Managing Director (India), World Gold Council.
Along with jewellery, India's investment demand for gold also declined by a sharp 23 per cent to hit the lowest in six quarters at 31 tonnes for the July-September quarter this year compared to 40.1 tonnes in the same period last year. With the fourth quarter-bounce back, India's overall gold demand is estimated to remain similar to last year's level of 674 tonnes.
After lower demand in the September quarter, "we expect full-year demand in 2017 to be well below the five-year average, our estimate being between 650-750 tonnes, with the lower end of the range being more likely," said Somasundaram.
Meanwhile, WGC reported India's overall gold import during the July-September quarter at 161.4 tonnes, up 62 per cent from the corresponding quarter of the previous year. In 2017, from January to September, total net gold import was 680 tonnes against 2016's full-year import of 557.7 tonnes. The growth in India's gold import, however, is the lowest in four quarters after the government tightened the loophole of importing almost duty-free from South Korea.
Meanwhile, gold demand in China jumped by 23 per cent y-o-y to 223.6 tonnes, while its jewellery demand jumped 13 per cent after 10 consecutive quarters of decline. Global demand for gold in the third quarter, however, declined by 9 per cent to 915 tonnes led by a softer quarter in jewellery sector and significantly lower inflows into the exchange-traded funds (ETFs).
Somasundaram said that intensified surveillance by monitoring agencies has resulted in muted growth and smuggling of gold. "Yet, 10 per cent of import duty is enough to encourage smuggling of gold into the country. Hence, we estimate smuggling to contribute 100-120 tonnes into India in 2017, similar to last year's 120 tonnes," he added.