India now the fourth largest gold recycling country: World Gold Council

India has emerged as the fourth largest gold recycling country in 2021, recycling 75 tons, or 6.5 per cent of the total gold recycled across the globe, said a recent report by the World Gold Council (WGC). Over the past five years, 11 per cent of India's gold supply came from 'old gold'; driven by movements in the gold price, future gold price expectations and wider economic outlook, the WGC report said.

Recycling of gold (jewellery, manufacturing scrap, and end-of-life industrial scrap), according to WGC's findings, is driven by price movements of the yellow metal - current and future expectations, and the economic backdrop.

"When the gold price jumps people tend to sell their gold holdings either to gain from the price rise or to avoid spending on new gold jewellery. Research from Metals Focus found that the percentage of consumers exchanging old jewellery increases when the gold price rises, and when the economy is under stress – as we saw during Covid-19 – gold is sold to meet every day needs," the WGC report said.

In the short run, a 1 per cent increase in the price of gold pushes recycling up by 0.6 per cent. Conversely, positive gross domestic product (GDP) growth in the same year and the previous year pushes recycling down by 0.3 per cent and 0.6 per cent, respectively. "In addition, a 1 per cent increase in jewellery demand pushes recycling down by 0.1 per cent," WGC said.

Gold refining capacity

Over the years, India's organised gold refining capacity, too, has seen a significant jump - from barely 300 tons in 2013 to around 1,800 tons in 2021, WGC said. A large part of this is attributed to the Indian government's accommodative stance adopted in 2013 towards domestic gold refining, introducing a duty differential between refined gold bullion and doré.

"From August 2013 to January 2016 the duty on gold bullion was 10 per cent with a duty differential of 1 per cent - 2 per cent for refineries depending on the zone in which they operated. Post the union budget of 2016, the duty on gold doré imports for refineries in the Excise Free Zone (EFZ) and Domestic Tariff Area (DTA) was 8.75 per cent and 9.35 per cent respectively, while the custom duty on bullion was maintained at 10 per cent – narrowing the gap for refineries to 0.65 per cent and 1.25 per cent respectively. Spurred by these tax incentives, around half of India’s new refining capacity since 2014 has opened in the EFZs, mostly in the state of Uttarakhand," WGC said.

India, according to Somasundaram PR, Regional CEO, India, World Gold Council, has the potential to emerge as a competitive refining hub if the next phase of bullion market reforms promotes responsible sourcing, exports of bars and consistent supply of doré or scrap.

"Domestic recycling market, driven by local rupee prices and economic cycle, is relatively less organised but should gain support from initiatives such as revamped GMS (Gold Monetisation Scheme) as various policy measures sync to make it attractive to bring surplus gold mainstream and liquidity is enhanced via bullion exchanges. Higher incomes following stronger economic growth will reduce outright selling and consumers will find it easier to pledge their gold rather than sell it outright. It is, therefore, necessary to support organised recycling with better incentives and tech-based solutions encompassing the gold supply chain end-to-end,” he said.