According to the World Gold Council (WGC), gold demand in rural India is likely to be lower this year with weak monsoon affecting household savings. Gold demand in the country mainly comes from rural households, especially farmers and about 7-8 percent of rural household savings goes into gold buying in the country.
The WGC stated that poor monsoon will impact the crop production, which in turn impact the rural gold demand. However, long-term demand for gold remains intact in India despite government restrictions, it added. The WGC estimated that India’s gold demand at 850-950 tonnes in 2014 as against 974 tonnes in the last year. Gold is the second largest import item for India after crude oil and is mainly utilised to meet the demand of jewellery industry. To curb gold shipments to check country’s widening current account deficit (CAD), the government had taken various measures like high customs duty of 10% and 80/20 rule under which 20% of all gold imports by importers has to be re-exported. Meanwhile, the government’s measures to contain the gold imports yielded results as gold and silver imports fell by 40.02% to $33.46 billion in FY14 due to these stern government’s norms.
However, the council stated that government curbs have encouraged smuggling of gold into the country and about 200 tonnes out of the total demand of 850-950 tonnes projected for 2014 calendar year would be served through grey market. The WCG further stated that as India’s gold demand would remain strong for India in the long term, there is need to find ways to mobilise and monetise 22,000 tonnes of gold stock worth $1 trillion held in private hands via formal financial sector.
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