Will UAE souks get boost from India gold duty hike?
Many leading Indian jewellery chains in the UAE and those that are not yet present in the Middle East are looking to increase their overseas presence to compensate for the potential loss of earnings following recent increase by India of the customs duty on gold imports.
Speaking to Emirates 24|7, gold and diamond jewellers said they are going ahead with their expansion plans, especially in the Middle East, because of increased customs duty in India.
Indian Finance Minister P Chidambaram said in a statement recently that Indians should resist the temptation of buying huge amounts of gold because every ounce of gold imported into India has to be paid for in dollar, eating into the foreign exchange reserves of the country.
The Indian rupee has been under tremendous pressure due to a growing current account deficit, and the Finance Minister went on to say that it was wrong to assume that gold was the safest investment. India is the largest consumer of gold and in Kerala alone, it is estimated that about 1,000kg of gold ornaments are sold a single day.
Large gold imports have been blamed as one of the factors behind the widening current account deficit. “On gold, I am happy that all my appeals are being heeded partly by the people of India. And I would still appeal to them,” Chidambaram was quoted in the media during a news conference.
“I would once again appeal to everyone please resist the temptation to buy gold.” He said the steps taken by the government have led to a moderation in gold imports. Net gold imports averaged $135 million a day in the first 13 business days of May till May 20. However, in the subsequent 14 business days it averaged $36 million, said media reports quoting the Indian Finance Minister.
Sham Lal, Managing Director, Malabar Gold and Diamond, said: “We are very positive about our expansion plans here and back home in India. Currently, we have 30 outlets in the UAE and other Gulf countries and plans are in pipeline to open 14 more outlets. We have just opened our new outlet in the Mirdif City Center and our expansion plans are in fact getting a boost from the increased customs duty on gold in India.
“An 8 per cent duty on gold import plus 4 per cent sales tax on gold purchases has made huge price difference between India and the UAE. There is 12 per cent difference in the cost of buying gold from the UAE and India. Hence more and more Indian jewellers will be setting up shop here. We are already positioned in this market, but others are likely to follow suit,” Sham Lal said.
Sunny Chittilappally, Chairman, Dubai Gold and Jewellery Group and Chairman of the Chittilappilly group of jewellers, said the statement by Indian Finance Minsiter is not beng taken seriously by Indian jewellers, especially in Dubai because buying gold is in the blood of South Asians.
“The Asian community, especially from India, Pakistan and Bangladesh have full confidence and faith in gold. In any emergency, gold is a liquid asset and good investment and they can sell gold during times of emergency. We have ten retail outlets under the Chittillappilly group and we will add two more outlets, if we get good locations. Other jewellers are also in an expansion mode. Even if customers stop buying gold in India, they will not stop buying gold from the UAE. They are buying and taking gold to India,” Chittilappilly said. “We hear that many Indian jewellery chains are planning new outlets,” he added.
India based Gitanjali has recently announced new outlets in the UAE, as has Chemmannu Jewellers, and a number of other chains including Kalyan jewellers have plans to enter the UAE market soon.
“It is futile to tell Indians not to buy gold to improve the country’s fiscal deficit. Nobody can tell an Indian father not to buy a mangalsootra or ring for his daughter’s marriage or give a gold ring for engagement. Gold ornaments are part of Indian culture and traditions and statements cannot deter Indian customers from buying gold,” Sham Lal said.
“If the motive is to reduce fiscal deficit, exports should be encouraged. Made in India brands are not exported well compared to other countries like China or Vietnam. Reducing gold imports alone will not reduce fiscal deficit,” he said.
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