MUMBAI, India – With India’s wedding season in full swing, Mumbai’s famed gold bazaars are crowded with customers eyeing elaborate headpieces, nose rings and necklaces.
No one does jewelry quite like an Indian bride, who by tradition wears all the gold she can stand up in and that her family can afford.
These days, though, even the most ambitious bridal budgets don’t bring the bling like they used to, thanks to increases in import duties and a rise in local gold prices.
Rajanikant Mehta, who owns a factory outside the capital, had planned to spend about 100,000 rupees ($1,800) on a necklace for the woman marrying his son late this month, but he’s unhappy about what he’s getting for his money.
Gold prices in India, which imports nearly all its gold, have risen 50 percent during the past three years to about $1,400 an ounce.
Thanks to the new tax and weaker rupee, that’s about a 20 percent premium over the world market price, now hovering at nearly $1,200 an ounce.
The price of gold should be lower, Mehta complained. This is a globalized world. If the prices are similar to the prices elsewhere, then the purchase of gold will increase.
More gold-buying, though, is exactly what the Indian government is trying to stop by raising import duties three times this year to 10 percent on gold bullion – up from 2 percent in January – and 15 percent on gold jewelry.
Gold is India’s second-biggest import behind oil, and purchases have soared in recent years as rising incomes from a decade of economic growth sent Indian consumers on a buying streak.
The problem is that the greater buying of the precious metal has dealt a blow to India’s economy by increasing the flow of money out of country compared to inflows. As a result, the account deficit rose to a historic high of 4.8 percent of India’s gross domestic product in the fiscal year that ended in March.
That in turn helped weaken the rupee by about 10 percent this year, making many products more expensive by raising the cost of oil, priced in dollars, and other raw materials.
But in trying to discourage gold-buying, India is taking on a passion that dates back thousands of years and is deeply entwined in Indian culture.
In some Hindu legends, Brahma, the god who created the universe, was born from a gold egg. The goddess Lakshmi is portrayed with a golden complexion and gold coins flowing from her hands. It’s considered good luck to give gold.
The custom of adorning brides with gold is both spiritual – gold is a powerful symbol of purity – as well as practical: The wife’s wedding adornments belong to her as insurance against a bad marriage, even though many men confiscate it.
Abhirami Damodaran, the daughter of a real estate businessman, plans to flaunt a whopping 7 pounds of gold worth about $150,000 on her big day.
When we wear gold, it’s not only the bride who is happy, but her parents as well, she said. They are giving gold as part of a future investment.
Still, the tax measures appear to have worked, with gold imports down 32 percent in the July-September quarter and India on track to lose its status as the world’s No. 1 consumer of gold to China this year.
The drop has eased pressure on India’s account deficit, now on track to reach a more comfortable annual average of 3 percent of the GDP.
The government hasn’t said what it plans to do with the extra revenue, but the country faces a big fiscal deficit, so every bit helps.
The official numbers tell only part of the story, though, since the higher import duties have also given birth to increasingly creative smuggling schemes.
According to Indian media reports, customs authorities have busted people with gold bars hidden in mobile phone battery compartments; a man with gold necklaces wrapped around his legs; and another man who had fashioned 109 solid-gold staples, painted them gray and stapled them to the box of a television he was legally importing.
Local media reported the staples weighed a total of 26.6 ounces with a value of about $30,500.
The seizures are probably only a fraction of the amount of smuggled gold getting through, according to the World Gold Council, which is based in the United Kingdom.
Going by the number of seizures that have been made at airports and elsewhere, there is enough evidence to say that smuggling probably has doubled this year, said Somasundaram, who uses just one name, the India director for the World Gold Council.