Demonetisation & GST impact: India is fast ceding gold market share to China

India is fast losing its gold market share to China. And, from that perspective, the January-March period of 2018 has been the worst for India’s share of the global yellow metal demand.

According to the World Gold Council’s gold demand trend report for the March quarter, released on Thursday, total global consumer gold demand (jewellery and investment) in 2017 stood at 3,198.6 tonnes, two per cent lower than that in 2010. India’s share of the 2010 demand, at 1,001.7 tonnes, was 31 per cent of the total; and China’s was 29.7 per cent. In 2017, while China’s share of the total demand increased to 31.6 per cent, India’s fell to 23 per cent. China and India have traditionally been the two biggest gold consumers globally.

In the March quarter, India’s share of the world gold demand fell further to 15.5 per cent, while China’s increased to 38 per cent. The changing pattern could be attributed to several structural changes that India has gone through in the past 5-6 years. By comparison, China has also implemented reforms but it has done so without disturbing the market.

In china, gold trade has entirely shifted to online spot exchanges and imports are also recorded on the exchange. India, on the other hand, first put stricter restrictions on gold import, and later demonetised high-value currency and implemented stricter regulations to reduce the menace of black money in bullion.

The last straw, apparently, was the implementation of the Goods and Service Tax (GST) regime. WGC says “larger, national and regional chain stores reported better sales than smaller, single-store and medium retailers” after GST rollout. This part of the market adapted very quickly and easily to the introduction of GST. However, WGC further notes, “but the wider jewellery industry continues to make progress in adapting to the new GST regime. Market research suggests that GST compliance is relatively high. And field research indicates that almost three quarters of the gold currently being sold in India is accounted for properly”.

India’s total demand took a hit and fell to an eight-quarter low of 115.6 tonnes, down 12 per cent from that in the March 2017 quarter. Jewellery demand was also down 12 per cent year-on-year to an almost stable global gold demand for jewellery. WGC India M D Somasundaram PR said: “Improving macroeconomic indicators suggest a positive outlook for jewellery demand. Moreover, the Union Budget announced measures to boost rural incomes, including higher minimum support prices and an increase agricultural credit. This bodes well for demand from the all-important rural sector, as does the forecast for a normal monsoon this year.”

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