DNA Money Edit: GST-sparked gold rush may continue in long run

India's imports of yellow metal jumped fourfold in May as compared to a year ago largely because of the fear of an adverse impact due to the introduction of goods and services tax, the roll out of which is aimed for July 1.

Imports surged to 126 metric tonne in May from 31.5 tonne a year earlier on expectation that GST rates on gold would be higher than the current tax impact of 2%. But as we know now, GST on gold would be 3%, higher than current rate but lower than industry expectations of around 5%.

While World Gold Council sees short-term disruptions as the industry adjusts to the new tax regime with manufacturers' and retailers' working capital getting tied up in inter-state stock transfers and small-scale artisans and retailers with varying degrees of tax compliance struggling to adapt, in the long term, GST should eliminate double taxation and improve supply chain efficiency.

Imports may dip now following clarity on the GST front and no major gold-buying occasions in the coming days. But demand for the yellow metal would continue to remain buoyant.

Rating firm Icra doesn't see any major disruption to the gold jewellery demand in the new GST regime and an uptick is expected on the back of a favourable monsoon guidance, likely rise in minimum support prices, rural employment guarantee scheme and waiver of farm loans in a few states. On the other hand, urban demand will be favourably influenced by rising income levels, staggered pay revision for state government employees and pensioners and favourable demographic spread.

This is good news for the industry which suffered 20% drop in imports during the year ended March 31.