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Indian Gold Dealers Seek to Get Round Duty Hike

Free Trade Agreement means lower duty on gold jewelry imported from Thailand...

INDIA could soon see a new gold rush, despite the doubling of duties on gold from 2% to 4% in last week's Union Budget, writes MineWeb's Shivom Seth in Mumbai.

Savvy Indians have already managed to circumvent the hike and are keen on accumulating gold jewelry pieces from Thailand and China, which are glittering anew on Indian retail shelves.

Though physical buying in India has almost evaporated for the last five days, with bullion markets remaining closed to protest the increase in import duties on gold, most jewelry houses have shored up their import of gold jewelry directly from select countries making it a cheaper proposition than Buying Gold in India. 

Duty on gold jewelry imported from Thailand, for instance, is just 1% due to India's free trade agreement with the country. Traders said Thailand also seemed to have taken advantage of the recent duty hikes in India to push through its long term gold program.

"Thailand is not a known jewelry producer and most of the imports taking place are from China and Malaysia, routed through Thailand. However, Thailand is an emerging export market as it seeks to diversify its growing foreign exchange reserves and mitigate risk against the backdrop of rising US and European debt concerns,'' said an analyst.

He added that the country had already made three significant purchases in the last year. The Thai government added another 500,000 ounces of gold to its reserves in September 2011, raising its total gold reserves to 4.9 million ounces.

Traders said exports of gems and jewelry from Thailand in 2009 were worth $9.4 billion, far below the projection of $10 billion due to the global recession. The next year though, this improved by 10%. Traders said demand from Indian jewelry houses this year is expected to further propel the sector's exports.

The 49th Bangkok Gems and Jewelry fair held between February 9 to 13 this year also was a roaring success, according to Indian traders. More than 100,000 foreign buyers, many of them from India, participated and viewed the products from 3,900 Thai traders.

"Though India has been the world's largest gold market for decades, in the final quarter of 2011 there was a 50% decline as compared to the same period in the previous year. This is a significant decline in the demand for gold. The collapse in the value of the rupee also made gold more expensive for Indian consumers,'' said Raghu Rajan, bullion expert.

In comparison, gold imports from Hong Kong to China rose from 118,904 kilo in 2010 to 427,877 kilo in 2011, an increase of 259% as compared to the previous year.

Traders confirmed that the sharp increase in the import duty on gold in India had created the possibility of a flood of cheap import of gold jewelry from Thailand. "It is not just 4%. With education cess, the figure comes to 4.12%. If jewelers pay 4.12% import duty on gold which is a raw material and 0.3% excise on jewelry which is a finished product, jewelry manufacturing itself cannot remain viable. At this time, importing gold jewelry from Thailand is much cheaper,'' said Manish Bahl, bullion dealer at Mumbai's famed Zaveri Bazaar.

Added Sanjay Kothari, vice chairman of the Gems and Jewellery Export Promotion Council, "The discrepancy is huge. It should be corrected, lest it sets a wrong precedent. The government has been notified of the matter.''

A trader pointed out that even if some of the jewelry design imported from Thailand did not gel with Indian consumers taste, melting that into gold and selling it in the domestic market would still make it a viable option.

Traders added that country's with which India has such treaties stand to benefit if differential duties persist and that Thailand's jewelry associations had already made arrangements to take advantage of the situation in India.

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Founded in 1999 as part of the Johannesburg-listed MoneyWeb media group, Mineweb is one of the world's leading sources of mining and metals-investment news, comment and analysis. Managed since 2003 by professional mining engineer Lawrence Williams – formerly of Mining Journal, and with more than 30 years' technical and financial experience in the sector – MineWeb provides thorough, international coverage of the natural resources industry.

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