Lately we have seen that gold has been performing well in the international market. However o the contrary, gold prices have been trading at a discount in the domestic market. The reason being- strengthening rupee. Hence prices in the domestic markets gave not risen Vis a VI the international markets.
Bullion Market expectations regarding Budget 2022 are similar to the previous ones. Let’s take a look
Removal of restrictions on import and exports of gold– In the previous Budget 2021, the Finance Ministry had cut down the import duty to 7.5 per cent from 12.5 per cent. This was done to bring some boost to the gold industry.
This year too, the bullion industry wants further cut in the import duty in order to strengthen the market. Several distortions have been witnessed between the domestic and international markets and this reduction in duty will help to balance it out.
The market expectation is that the duty should be reduced from the current rate of 7.5 per cent to 4 per cent. However, if the government decides to impose GST (goods and services tax), such a rate cut would be nullified.
However, any further duty cut can be doubtful. This is because gold imports have risen largely, and any further rate cut would lead to more imports. According to statistics, gold imports in India have doubled in the first three quarters of this fiscal year, i.e. imports stood around $38 billion until December 2021.
Hence, if the government considers the import duty cut but imposes GST, the end price for the consumer will not change without affecting the demand.
Capital Gain – Besides, capital gain on gold is demanded to be rationalised to boost its investment. Long term capital gain on gold is taxable at 20 per cent (with the indexation benefit). Whereas the rate applicable on investment in shares is only 10 per cent if held beyond one year. The rate and holding period of gold investments are higher than the equity investments, making the latter a preferred investment option. Capital gain rates must be rationalised to consider investing in this precious metal.
Development of markets for physical and financial gold- There is a huge amount of accumulated wealth of gold in India. The government should try to use these savings for the development of the nation by mobilising and channelizing the same to productive uses.
Encouragement of banks and non-banks to participate in the gold market- currently, there are no designated bullion banks in the country. The entire business transaction of the gold industry with the bank needs to be done through the bullion bank. This makes banking inconvenient for stakeholders such as refiners and jewellers. For example, currently, if a jeweller wants to take a loan against his/her holding in the metal, he/she has to convert it into a rupee, make a deposit in a bank and take a loan against that. Or the jeweller/refiner will have to approach an international bullion bank for the same transaction. Instead, having a bullion bank would allow the jeweller to take a loan against the metal, making the process much easier.
The government has always been supportive and has tried to maintain a win- win for all. We all hope this budget works mutually well across industries.