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India's gold demand likely to slow down to 2-4% in CY18: ICRA

Domestic credit rating agency, ICRA in its latest report has said that India's demand for gold jewellery is likely to slow down to 2-4 percent in volume terms in the calendar year (CY) 2018, mainly on account of higher prices and subdued financing environment. However, it has estimated growth in value terms during the year at 5-7 percent. It pointed out that prices of the yellow metal have increased steadily in the past three months, which coupled with lesser number of auspicious days, impacted jewellery demand. Also, it noted that financing to the gems and jewellery sector have been under increased scrutiny in the recent months following reporting of fraud by few lenders on their exposures to the sector.

According to the report, with enhanced due diligence and checks on credit quality and inventory quality, lenders are more cautious on the sector. It also expected that the tightened credit availability to affect the working capital position of jewellery retailers, especially the unorganised ones. However, over the medium term, it expects the gold jewellery retail industry to record a 6-7 percent volume growth, supported by stable rural and wedding demand, cultural affinity for gold, rising disposable income, and favourable demographic profile. It added that the industry revenues are also likely to settle at 7-8 percent growth led by socio-economic and cultural factors that are unique to the Indian market.

ICRA further highlighted that in CY17, gold jewellery demand had grown by 12 percent in volumes and 9 percent in value, amid reports of higher tax rates after GST rollout and inclusion of jewellery sector under the ambit of Prevention of Money Laundering Act. It noted that the growth was supported by factors like pent-up demand on the back of favourable gold prices, pre-buying ahead of GST rollout, extended wedding season and strong rural demand with good crop output.

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