Gold Import Duty Cut in Budget 2024: Impact on Indian Consumers and Gold Shopping Habits
The recent reduction in customs duties on gold imports announced in the Union Budget 2024 is poised to significantly alter the gold shopping behavior of Indian consumers, particularly those who frequently travel to Dubai to purchase gold. Indian jewellers who operate both in India and the UAE believe that the reduction in the duty differential will lead to lower gold prices in India. As a result, buying gold in Dubai, which has been a favored destination for many Indians, may no longer seem as appealing.
Dubai has long been a popular destination for Indians seeking to purchase gold, particularly after a sharp increase in customs duty in India in July 2022. The duty hike had led to a notable rise in the price of gold within the country, prompting many Indian consumers to turn to Dubai, where gold prices were relatively lower. However, with the fiscal year 2024-25 budget, the Indian government has more than halved the duty on gold imports, marking a significant shift in the gold market.
Narrowing Duty Differential
This substantial cut in the customs duty is expected to directly impact gold purchases in India, narrowing the price gap between gold in India and Dubai. Indian jewellers are optimistic that the reduction will not only make gold more affordable in the domestic market but also attract a larger share of the gold-buying public back to India. For instance, Joy Alukkas, chairman of the Joy Alukkas Group, predicts that nearly 50% of their UAE-based business could shift to India, as Indian tourists who once favored buying jewellery in Dubai might now opt to shop in India instead. However, he acknowledges that Indian expatriates living in Dubai, as well as other customers based in the UAE, may continue to make their purchases locally.
Boost to Gold Jewellery Production in India
Another consequence of the customs duty reduction is the expected increase in gold jewellery production within India. This could particularly benefit the ‘Kolkatti’ jewellery industry, which is well-known for its intricate craftsmanship and is highly popular among Indian expatriates in Dubai, as well as tourists from various countries. With reduced gold prices, there is likely to be a surge in demand for both heavyweight and lightweight jewellery, which could motivate gold artisans to innovate and create new designs.
Jewellers believe that this trend will further enhance India’s standing as a global hub for gold jewellery. Indian consumers, previously attracted to international gold markets, may now find it more appealing to purchase their gold within the country, given the availability of competitive prices and high-quality designs.
The Changing Perception of Overseas Gold Purchases
There has long been a perception among Indian consumers that buying gold abroad, particularly in Dubai, is cheaper and more advantageous. However, Rajiv Popley, director at Popley & Sons, argues that this is largely a mindset rather than a reality. He points out that labour costs in India are significantly lower than those in international markets, making gold prices in India competitive. Additionally, with the introduction of mandatory hallmarking and HUID (Hallmark Unique Identification) numbers, concerns regarding the purity of gold purchased in India are diminishing.
Popley further explains that the introduction of hallmarking and HUID has played a significant role in improving consumer confidence in Indian gold. This, coupled with reduced customs duties, may prompt many Indian consumers to reconsider their preference for purchasing gold abroad and instead buy within India, where they can be assured of quality and competitive pricing.
Limited VAT Refunds on Overseas Purchases
Another factor discouraging Indian consumers from purchasing gold abroad is the limited value-added tax (VAT) refunds available to them. Non-resident Indians (NRIs) living in Dubai do not receive VAT refunds on their purchases, while Indians traveling abroad can only reclaim about 60% of the VAT on gold purchases made overseas. This further diminishes the financial benefits of buying gold abroad, making it a less attractive option compared to purchasing in India.
Discounts from Indian Jewellers
Gold trade analyst Bhargav Baidya notes that the remaining 1% duty differential between gold jewellery in India and Dubai will likely be offset by Indian jewellers offering discounts to retain and attract customers. These discounts, coupled with the reduced customs duty, will make gold purchases in India more attractive. Additionally, Indian jewellers are likely to offer competitive pricing and promotional offers, ensuring that customers who might have previously bought gold abroad will find it more economical to purchase within the country.
Indian Duty Now Competitive Globally
Saurabh Gadgil, chairman of PNG Jewellers, points out that following the duty reduction, India’s gold import duty is now on par with the United States. This allows Indian jewellers to offer prices that are competitive not only with Dubai but also with other countries worldwide. As a result, Indian consumers are expected to increasingly find it more convenient and cost-effective to buy gold within India, rather than looking to international markets.
The reduction in customs duties is likely to have a long-term impact on India’s gold market. As the price differential between India and other countries, especially Dubai, continues to narrow, Indian consumers may shift their focus toward domestic purchases. The convenience of buying gold within India, combined with lower prices, increased production of quality jewellery, and the assurance of purity, could lead to a significant transformation in consumer behavior.
A Significant Shift in Gold Shopping Preferences
The Union Budget 2024’s gold import duty cut is poised to make purchasing gold in India more appealing to Indian consumers, particularly those who had previously sought better deals abroad. With competitive pricing, reduced concerns over purity, and the convenience of local shopping, it is expected that a large portion of Indian consumers will shift their gold shopping preferences to domestic markets.
While Dubai may continue to attract expatriates and international tourists, the overall trend suggests that Indian consumers will increasingly favor buying gold within their own country. As the gold market evolves in response to the changes introduced by Budget 2024, India is likely to strengthen its position as a global leader in gold jewellery production and consumption, with both consumers and jewellers benefiting from the reduced duties and competitive pricing.
