Incentives to drive India’s gold demand this Diwali

By:Vandita Jadeja 2017-09-30

Indians have always considered gold as a significant investment. With gold trading at a four week low, jewelery buyers are abstaining from new purchases and banking upon incentive based schemes and replacement for this Diwali. Consumers tend to purchase gold during the Festive season since it is considered auspicious. The purchase of gold jewelery above Rs.50, 000 will require the submission of KYC details under the Prevention of Money Laundering Act. This requirement has caused fears among the buyers and those not willing to submit the KYC will only be able to make small purchases within the limit of Rs.50, 000.

Many jewellers have now introduced a 13 month scheme, which means twelve months buyer and one month jeweler. Various jewelers have introduced a 9+0.7 scheme in which a jeweler deposits 75% of the first month’s payment after the investor deposits a fixed amount for nine months consistently without any interruption.

Immediately at Durga Puja, the jewelers noted an increase in consumer footfalls. The demand of new jewelry has been negligible with consumers opting for replacement or schemes which are not a positive sign for the jewelers. Meanwhile, the price of gold has fallen at the lowest in the last four weeks and the depreciation in rupee has restricted the benefit of the global fall in the price of gold for Indian buyers. Standard gold has slipped marginally to Rs. 29, 625 per 10 grams from Rs. 30, 180 per 10 grams in September 2017.The sentiments of the consumers are very weak currently which is for the first time in the past 36 years. Indian jewelry business has hit a major low in the last one year due to demonetization and GST. The rate of GST on jewelry is 3% which has had a major impact on the buyers. Interestingly, the business cannot thrive on the scheme and replacement purchases. The bullion dealers have imported enough gold in the last five months which is enough to cater to the entire jewelry industry for the rest of the year. It will be interesting to see how the buyers react to the incentive schemes offered by the jewelers. With the festive season coming close, the purchases are expected to pick up. Diwali and Durga Puja are major festivals when the purchase of gold is on a high. This year though, it is too soon to predict.