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Last Updated : Dec 22, 2016 03:13 PM IST | Source: CNBC-TV18

Lower gold import duty good sign, may curb smuggling: Titan CFO

Reports indicate that government is likely to lower import duty on gold to 6 percent from 10 percent. Speaking to CNBC-TV18, S Subramaniam, CFO, Titan Company says it will be a good sign if the government takes this decision as it will curb smuggling of gold in a big way.


Reports indicate that the government is likely to lower import duty on gold to 6 percent from 10 percent.

Speaking to CNBC-TV18, S Subramaniam, CFO, Titan Company said, it will be a good sign if the government takes this decision as it will curb smuggling of gold in a big way.

As per the data by World Gold Council, around 100-150 tonnes of gold is being imported through the smuggle route.

This is a revenue loss for the government. Also, this is where the black money gets passed as well, said Subramaniam.

If the government wants the war against black money to continue then it should also focus to curb smuggling, he said.

The demonetisation drive had a major impact on the jewellery sector. Subramaniam says the bigger impact of cash ban was on the wholesale trade channel as it deals more in cash.

Also, the big ticket items are getting hit in terms of consumption.

He said the diwali season saw a revival of consume discretionary purchase but now that has been affected due to the cash cash chaos.

Below is the transcript of S Subramaniam’s interview to Latha Venkatesh and Reema Tendulkar on CNBC-TV18.

Latha: If this were to happen, if the import duty were indeed to come down, what might be the impact on gush of imports?

A: I think it is very good. It is a very thing if it actually does happen more because it could curb smuggling in a big way. And that is the big take out that we will have. Taking out smuggling is as import as this war against black money that the government is undertaking. It makes a lot of sense to do that.

Latha: But do you think they will do it? Although the buzz has been around, afterall th government is also on its anti-black money campaign and there is always a fear that those who are putting away money from the tax guy are probably saving it in gold.

A: It is possible that it is stored in gold. And will the government do it? The way I look at it is if you see the data that the World Gold Council keeps publishing on a quarter-on-quarter basis, they suggest that 100-150 tonnes of gold is being imported through the smuggled route. That is one, clearly revenue loss for the government and number two, the fact that this is exactly where the black money will kept apart as well. So, if you want that war against black money to continue, then makes a whole lot of sense to curb smuggling in a big way. And therefore, it would be in the government’s interest to actually reduce this and lower the smuggling of gold in a big way.

Reema: What is the current price differential between the landed imported gold prices versus the domestic price? And if we do indeed see a cut in the import duty to 6 percent, how will this affect gold prices?

A: The difference is obviously 10 percent at least because that is the customs duty at this point in time. This is the official thing. Now, there are various estimates of what the cost of this smuggled gold, etc. comes at. But the fact is that, sometime back there was a study, it was taken by the RBI or somebody who did that and said that if the rate is about 4-5 percent, that is if the customs duty is about 4-5 percent, the arbitrage opportunity is substantially lower. And that would reduce smuggling in a big way. So, that is the breakeven if you can call that where the incentive to smuggle would come down drastically.

Latha: What is the overall psychological impact of the demonetisation? There are some behavioural economists or at least those who have interest in behavioural economics saying that probably this will deter people from big consumption. A big blow has come and therefore, discretionary consumption will take a hit for the time being.

A: I think it is quite likely. It is quite likely that for the short-term there could be an impact on discretionary consumer spend. We did not feel it so much because we were right in the middle of the wedding season and therefore, at least our jewellery sales were not impacted so badly. Watches also were quite decent, except for the trade channel. The bigger impact we are actually seeing is on the wholesale trade channel which tends to deal much more in cash than the organised modern trade. So there, we are definitely seeing it. We are also hearing reports from others, I am talking about the industry here and other categories as well, that the big ticket items actually are getting hit in terms of consumption. So, people are doing a wait and watch approach at this point in time and I would think that this would last till such time that there is enough and more liquidity in terms of cash in the economy.

Reema: On a consolidated basis then, if you could tell us what the hit has been to jewellery and secondly, your watches and accessories on account of demonetisation, the impact on sales on a consolidated basis.

A: It would be difficult to estimate that because we talked about a very good Diwali this year. We had a great Diwali in the first half of this quarter. The season was great and therefore, what we saw actually, was a significant revival of consumer sentiment towards discretionary purchase. That has got impacted. So, while our sales obviously fell immediately after the aftermath of November 8, it caught up very quickly because of the ongoing wedding season. So, what is possibly missing is the tailwind that we had, a strong tailwind that we had in terms of consumer sentiment. So, that is the major impact. And of course, as I said, in watches we have been impacted by the trade channel, the wholesale channel where we sell roughly 50 percent of our watches.

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First Published on Dec 22, 2016 09:59 am
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