India’s gold demand higher than FPI inflows for a decade

The government’s decision to raise customs duty on gold to 12.5 percent from 10 percent will result in additional ₹4,000-5,000 crore of revenues, said Kotak Institutional Equities in a report. However, it will increase the domestic price of gold by 2.5 percent and revalue the entire stock of gold with Indian households by the same amount, it added.

India has been ‘exporting’ its savings through large imports of gold and precious stones and has to rely on foreign capital to bridge the the gap between savings and investment (CAD), the firm said. Incidentally, India’s net imports of gold have exceeded FPI inflows by $100 billion over FY2011-19.

The firm said in the report that it would have been better to increase the GST rate on jewellery, which could reduce the appeal of gold and precious stones as an investment class. The value of gold jewellery for a buyer will be the price less the GST paid.

Courtesy: Economic Times