With the Government scrapping the 80:20 scheme, the bullion trade is the most happening space with prices of the yellow metal undergoing wild swings, shares of jewellery companies back in black amidst, and most importantly, hopes that smuggling would be contained.
After the rule was imposed, gold prices moved as high as $125/ounce above global benchmarks.
SmugglingThis also amplified concerns about the increase in smuggling and the impact on exports of jewellery.
According to data, as of October, gold worth ₹208 crore was seized by Customs officials from smugglers, double that recovered during the 2013-14 fiscal.
Now, with the scheme scrapped, the premiums could come down substantially.
From a macro perspective, the jewellery industry believes that withdrawal of the 80:20 scheme is a positive step as gold smuggling could abate.
As the Import duty of 10 per cent remains, smuggling is unlikely to come to a halt.
On the other hand, even though the current account deficit (CAD) is under control it could fall further due to the slip in crude oil prices.
Trade deficitHowever, investors will be wary that imports of gold could widen the trade deficit again.
This would mean widening CAD which could spell more trouble for the rupee which had depreciated over seven per cent in just one month’s time the last time CAD had worsened.
Will this happen again? We have to wait and watch.
The writer is Research Analyst, ADMISI Commodities Pvt Ltd. Views are personal.