Clampdown on ‘black money’ curbs gold appetite: Kotak

SINGAPORE: India’s crackdown on undisclosed foreign assets and income is curbing demand for gold in the world’s second-biggest consumer, while rising real interest

SINGAPORE: India’s crackdown on undisclosed foreign assets and income is curbing demand for gold in the world’s second-biggest consumer, while rising real interest rates and better returns from other financial markets are also hurting purchases, a banker said.

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Although consumption should pick up from now until the end of the financial year, when India buys more during festivals and weddings, weak demand so far has dragged on the global gold price that has shed nearly 9% from a two-year high in July to $1,258 an ounce (or ₹29,741 per 10 gram) on Tuesday.

“There is a crackdown on black money in India and many people who were looking at gold as an investment for unaccounted income are no longer investing in gold,” Shekhar Bhandari, executive vice-president of Kotak Mahindra Bank, told Reuters.

Unofficial estimates suggest funds illegally deposited in banks outside the country to avoid tax, known as “black money” in India, account for about 10-30% of the country’s gold demand, said Bhandari.

A tax evasion amnesty scheme, led by the government of Prime Minister Narendra Modi, that closed in September disclosed nearly $10 billion (₹67,000 crore) in undeclared income.

India’s gold demand has also been hit by higher returns from other asset classes, Bhandari said, with returns on equities and bonds at 12-13% dwarfing gold’s 0.9% in terms of rupees since 2013.