From the previous budget to this year’s- Gold witnessed some key events in the domestic market.
They varied from politics to economic to geopolitical. Namely-
Demonetisation
Prime Minister Narendra Modi made the surprise announcement on 8th November 2016 that the 500 and 1000 Rupees are just “worthless piece of paper”. The 500 and 1000 Rupees notes have been banned to fight back money and money-laundering. The new 2000 and 500 Rupees notes were released on 8th November 2016. The aftermath of demonetization, banks and ATM across the country faced severe cash shortages.
Goods and service bills passed
Goods and Services Tax bill were passed on 8 August 2016. GST is a proposed system of indirect taxation in India merging most of, the existing taxes into a single system of taxation. It would be a comprehensive indirect tax on the manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the state and central governments.
Surgical Strike Against Pakistan
The Indian said that it had conducted “Surgical Strikes against suspected militants in Pakistani-administered Kashmir on 29 September 2016. Lt Gen Ranbir Singh (DGMO) said that it had received “very credible and specific information” about “terrorist teams” who were preparing to “carry out infiltration and conduct terrorist strikes inside Jammu and Kashmir and in various metros in other states”. The Indian action was meant to pre-empt their infiltration.
But of the ones mentioned above gold was majorly affected in the year end by the announcement of demonetisation scheme.
Gold has been a beneficiary and even a victim of demonetisation. On a net basis, this demonetisation exercise as of now has been neutral for gold. As the demonetisation alarm bells rang, the rush to buy gold was almost immediate. As media reports suggest and also confirmed by gold import numbers, a lot of gold was sold on the night of November 8, as many rushed to buy gold with old notes. Post that, as the cash crunch hit the economy, there was a significant decline in discretionary spending including gold.
In many of our pre budget expectations over the past few years, we have always proposed to make the gold industry more organised. Fortunately, the demonetisation scheme, launching of a gold scheme and making PAN number compulsory for purchases of gold jewellery worth more than Rs 2 lakh shows the seriousness of government in making the making gold a commodity and thus channelizing it into a more organised way.These are signs of positive policy
After a neutral financial year for gold industry in India, all eyes were on the Finance Minister for the budget that was presented today- Feb 1st. This date marks the change in previous customary budget schedules which usually took place at around the end of February, usually February 28. The gold industry was hoping for a change from last few years of high import duties to a more reduced levy.
The industry was expecting a reduction in duty not onlyfor the interest of the dealers but also for the good of the common man.
However, there was no such announcement and duties have been unchanged. The budget is neutral for the gold industry and overall positive. On a scale of 1 to 10 I would rate this budget as 6.5.
