Nilesh Shah’s early warning to FM Sitharaman: Don't let gold become the next oil
Veteran investor Nilesh Shah has urged Finance Minister Nirmala Sitharaman to keep a watchful eye on any spurt in India’s gold import bill in the wake of the customs duty cut and rising international prices. Kotak Mahindra AMC's Managing Director and CEO Nilesh Shah shared this early warning with Finance Minister Sitharaman on 26 July at an exclusive Open House hosted by CNBC-TV18.
“We (India) are importing about 700 tonnes of gold, which is (worth) about $35-40 billion. With the reduction in gold import duty, gold imports will rise,” said Shah at the Open House, adding that he too expects the price of gold to appreciate. The Union Budget 2024 has proposed to slash the import duty on gold, effectively halving the taxes.
“It should not happen that our gold import bill starts exceeding our oil imports bill,” said Nilesh Shah. Earlier this week, in Budget 2024, Finance Minister Sitharaman proposed to cut the basic customs duty on gold to 6 percent from 10 percent, and Agriculture Infrastructure & Development Cess (AIDC) to 1 percent from 5 percent. It will effectively reduce the overall taxes on gold to 9 percent (including GST) from around 18.5 percent. She also announced a reduction in customs duty on silver to 6 percent and that on platinum to 6.4 percent.
India depends on imports to meet nearly 88 percent of its crude oil requirements. In the last financial year 2023-24, India’s net oil and gas imports (net of crude oil and petroleum products imports and exports) were at $121.6 billion. This was down from $144 billion a year ago. However, India’s dependence on imported crude oil rose to a new high of 87.7 percent in FY24, up from 87.4 percent in the previous year, showed the government data.
India is also among the largest consumers of gold, depending on imports for nearly all of the yellow metal it purchases. While domestic gold prices saw a sharp fall on Budget day -- to Rs 69,269 per 10 grams on 23 July from Rs 72,875 a day before -- international prices are likely to continue to rise, say experts. Gold price are up nearly 15 percent so far this year.
This rise in price, combined with the allure of the lower taxes, may prompt Indians to buy more gold, which Nilesh Shah sought to equate with oil imports. “The stress will be slow, but please keep a watch on the same,” he told the Finance Minister.
Separately, on the government’s disinvestment programme, Nilesh Shah suggested Finance Minister Sitharaman to take up the low float PSUs first for stake sale. “Please give priority to the low-floating stock PSUs, where the valuation has gone on the higher side. If you supply, those prices will get corrected and there will be proper market discovery,” he said.
Source: https://www.moneycontrol.com/