According to a local media report, India’s government recently updated its gold import policy to increase trade relations with the United Arab Emirates. Now, Directorate General of Foreign Trade is allowing gold imports through India International Bullion Exchange IFSC Limited following a concessional import duty rate defined by the tariff rate quota provisions within the Comprehensive Economic Partnership Agreement. This new era of trade will allow valid tariff rate quota certificate holders to import gold through the bullion exchange.
The CEPA agreement went into effect back in May 2022, though this more recent move will facilitate a trade relationship between India and UAE, ultimately benefitting India’s retail industry, according to Vipul Shah, Chairman of the Gem and Jewellery Export Promotion Council.
“Valid India-UAE TRQ holders, as notified by IFSCA, can import gold through IIBX against the TRQ and can obtain physical delivery of the same through IFSCA registered vaults located in SEZs as per the guidelines prescribed by the IFSCA,” DGFT explained in the announcement.
Shah believes this move will enhance trade relationships between the two countries by reducing transaction costs and streamlining the entire process. “This will also help in creating a vibrant gold market in India and boost the exports of value-added jewellery products. We appreciate the efforts of the Government of India and the IFSCA in implementing this progressive policy measure,” Shah added.
The CEPA agreement provides a 1% duty concession to domestic importers on specific gold quantities under the pact’s tariff rate quota provisions.
New Delhi has already agreed to the 1% concessional import duties on gold imports of up to 200 tons per year following the defined trade agreement. In general, India typically imposes a 15% import duty on gold products.
Last July, India established the International Bullion Exchange IFSC Limited to provide a gateway for bullion imports into the nation. Now, the world-class bullion exchange system promotes India’s bullion trading and investment infrastructure with vaulting facilities and various investment products. With gold being deeply ingrained in India’s economic structure, it makes sense that the nation wants to enhance its trading capabilities with one of the world’s top gold hubs.
In 2022 and 2023, the United Arab Emirates was India’s third-largest trading partner, with total trade between the two reaching $76.16 billion. India also imports a significant amount of gold from Switzerland, though Switzerland imposes increased regulations on trade practices.
India is also the second-largest gold jewelry market in the world, only falling short of China. In 2021 alone, India purchased over 600 tons of gold. Together, China and India control over 60% of the world’s jewelry market.
So, why has India’s gold market been booming so much lately?
To answer this, you must understand how gold is deeply intertwined with India’s culture. Buyers in India purchase gold jewelry and other retail precious metal products around the festive season, as they symbolize wealth, prosperity, and good fortune. During holidays like Diwali, auspicious wedding dates, Dhanteras, and other Hindu celebrations, retail gold demand spikes exponentially as buyers flock to the precious metal to purchase gifts for their loved ones.
For example, in October of this year, India imported 123 tons of gold, representing a 59% increase when compared to last October’s import rate of just 77 tons. On average, India imports around 66 tons of gold per month, but the nation has been increasing its supplies to match its growing demand rates.
During the third quarter of 2023, India’s gold bar and coin demand rates reached 210.2 tons, representing a 10% increase from the previous quarter or a 20% jump compared to the same period last year. India’s gold coin and bar demand rate during 2023’s third quarter sat around 38% above the nation’s quarterly average as well, which generally sits at around 40 tons.
“Investors reacted to the downward correction in the gold price from its Q2 record high, adding to their holdings in the expectation of a price recovery in Q4 as the wedding and festive season gets underway,” the World Gold Council explained in a recent report.
Between the festive season now fully underway, the minor dip in prices attracting buyers, and the tensions in the Middle East spiking safe-haven demand, India is experiencing a perfect storm right now, boosting its gold demand to unforeseen levels. Now, with the upgraded import policies enhancing trade with UAE, the nation’s market should enjoy a new influx that improves buying even more.