India is 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 percent of the total gold recycled across the globe, said a recent report by the World Gold Council (WGC). Over the past five years, 11 percent 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 (jewelry, 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 jewelry. Research from Metals Focus found that the percentage of consumers exchanging old jewelry increases when the gold price rises, and when the economy is under stress – as we saw during Covid-19 – gold is sold to meet everyday needs,” the WGC report said.

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

Gold refining capacity

Over the years, India’s organized 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 percent with a duty differential of 1 percent – 2 percent 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 percent and 9.35 percent respectively, while the customs duty on bullion was maintained at 10 percent – narrowing the gap for refineries to 0.65 percent and 1.25 percent 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 organized 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 organized recycling with better incentives and tech-based solutions encompassing the gold supply chain end-to-end,” he said.