Clampdown on 'black money' killed India’s appetite for gold: report

The government's crackdown on undisclosed income and assets has adversely affected gold demand in India, the world's second largest consumer of the precious metal, says a Reuters report.

The report, which quoted Shekhar Bhandari, executive vice-president of Kotak Mahindra Bank, also said the rising real interest rates and better returns from other financial markets also led to the curbing of demand for gold in the country.

The slack demand even during the ongoing festival season in the country, in turn, has pushed down global gold prices by nearly 9 per cent from the two-year highs of July to $1,258 an ounce on Tuesday, the report pointed out.

"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 at all," Reuters quoted Bhandari as saying on the sidelines of an industry meet.

Bandari also quoted unofficial estimates to suggest that funds illegally deposited in banks outside the country to avoid tax account for about 10-30 per cent of the country's gold demand.

The amnesty scheme extended by the government to tax evaders raked in over Rs60,000 crore till September.  The scheme also stilled activity on the ''black money'' front by slackening spending in precious metals and property the main investment channels for undisclosed income.

Gold's glitter also faded with 12-13 per cent returns on other assets such as equities and bonds against the 0.9 per cent gain of gold since 2013, Bhandari pointed out.

With inflation on the wane, real interest rate has gone up and this in turn also affected gold demand, it was pointed out.

"The returns on gold in rupees is pathetic," Bhandari said.

"I think it won't be advisable to invest in gold given current levels where investment returns are likely to be negative in Indian rupees."

India's gold imports fell for a ninth month in September as weak retail demand and higher discounts prompted banks and refineries to cut overseas purchases.

Banks like Scotiabank are now pinning hopes on the second half revival in gold demand as prices plunge.