Gold retailers await result of new Indian Government duty increases

By Charlotte Turner |

In line with measures, which aim to contain the current account deficit, the Indian Government has now increased the customs duty on gold and platinum from 8% to 10% and on silver from 6% to 10%, spelling trouble ahead for gold retailers in travel retail.

 

The basic purpose of enhancing the duty was to curb the import of gold. Imports of gold and silver have witnessed a surge in recent months. In quantitative terms, the imports of gold increased from 205 MT (Metric Tonnes) in April – July, 2012 to 383 MT in April – July, 2013, an increase by about 87%.

 

Dubai Duty Free says it is concerned that its gold business could suffer as a result. Saba Tahir, Vice President – Purchasing, Vendor Support & Research, says: “The Indian government has decreased the gold allowance for their nationals and a new law has come into effect as of February 2014, that all expatriates of Indian origin should declare their gold and jewellery worth INR10,000.00 which is US$161.

 

“This has been a big concern for the Indian community, but we need to wait and watch the results of this law on our gold sales.”

 

Dubai Duty Free says gold sales are still maintaining an upward trend in 2014 with international brands like Leo Wittwer, Bvlgari and Chopard already showing great promise in 2014.

 

‘NEED FOR COMPRESSION OF GOLD AND SILVER’

The Indian Finance Minster has underlined the need for compression in the import of gold and silver. According to local reports smugglers based in the Gulf are resorting to innovative ways to take gold into India, as recent arrests at various Indian airports show.

 

The problems experienced by retailers in India and the Middle East may cause a ripple effect. According to a paper published by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) the price of gold worldwide could be influenced by the outcome of the general elections and stability of the new Indian government along with global concerns over China and the US.

 

“At the moment, three important factors are driving the global gold market; concerns over the Chinese economy, uncertainty over the pace of the US economic recovery and the anxiety around the Indian general elections,” says the paper.

 

“India and China are competing with each other for retaining the slot of being the number one consumer of the yellow metal. The demand in these two markets is going to increase should the two economies witness political or economic uncertainties.”

 

GLOBAL RIPPLE EFFECT

ASSOCHAM Secretary General Mr D S Rawat said, “while the global factors will certainly weigh on gold prices, the Indian market as a consumer of the yellow metal and for the equities would be surely affected by the unfolding developments.”

 

Thankfully for Dubai Duty Free and other duty free retailers, gold sales are not restricted to Indian travellers only [although they are still DDF’s biggest customers]. The Chinese, Pakistanis, Arabs, Bangladeshis, Africans, Europeans and Russian customers also contribute significantly to gold sales.

 

Right: India’s Finance Minister, P Chidambaram.

 

The retailer says gold sales are still maintaining an upward trend in 2014 with international brands like Leo Wittwer, Bvlgari and Chopard already showing great promise in 2014.

 

“Akaru, Dubai Duty Free’s in-house brand has registered excellent growth this year in gold and precious jewellery; Akaru gold jewellery increased by 5% and precious jewellery by 14.39% in the first two months of 2014.

 

Dubai Duty Free says it is concerned that its gold business could suffer as a result of the new increase.

 

UPWARD TREND MAINTAINED

“Gold is still in popular demand; sales contributed 9% to total DDF sales in 2013. And when we compare our sales in 2013 with 2012 we see an increase in value by 5.32%. This upward trend has continued in 2014 as the increase jumped 4.57% YOY. In costume jewellery, Swarovski sales have grown by 13.49%.

 

“Passengers from the Indian sub-Continent are the most important customers for us for gold and they contribute 35.90% to our sales. Followed by passengers from Europe, Middle East and Far East.”

 

Tahir reveals that, in terms of precious jewellery, passengers from Far East contribute 27.29% followed by Europeans 16.54% and Middle East 13.76%. In costume jewellery the passengers from Far East contribute 24.99%, followed by Middle East 23.48%, and Europeans 18.31%.

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