Under-the-counter cash gold sales boom in India

High gold prices and steep taxes are prompting more Indian buyers to engage in under-the-counter cash sales, where bullion and jewelry change hands without traceable invoices. Cash purchases can reduce costs by up to 6% compared to standard market prices, according to industry insiders. Dealers accepting cash can pass these savings onto customers, avoiding taxes themselves.

Anuradha, a 55-year-old homemaker, bought wedding ornaments for her daughter at a 5,000 rupee ($52) discount per 10 grams, which she took without a receipt. The discount was significant for her after gold prices reached a record high earlier this year, though they have since eased but remain nearly 28% higher than a year ago. "It was an offer I couldn’t refuse. Gold prices are way too high and we trust the jeweler," she said, requesting anonymity due to the sensitive nature of the transaction.

The unofficial cash trade has surged since the government doubled import levies on gold and silver to 15%, aimed at curbing purchases amid India's ballooning trade deficit. Customers face an additional 3% goods and services tax. This unintended consequence has allowed traders to source gold at discounts of up to $200 per ounce from domestic prices.

Prices vary widely in the informal market, with deals negotiated individually rather than against a benchmark. Hiren Chandaria, managing director of Monetary Metals, explained that higher import duties create a greater incentive for gold to enter the unofficial duty-free channel. In comparison, official channel markdowns averaged $50 per ounce in September, according to Metals Focus.

Some buyers secure discounts of up to 10,000 rupees per 10 grams through strong bargaining with jewellers. Gold remains India's biggest imported commodity after oil, contributing significantly to the trade deficit, which reached nearly $32 billion in July, the highest this year. Imports surged over 32% in the first four months of 2023, prompting Prime Minister Narendra Modi to urge Indians to avoid purchases and conserve foreign-exchange reserves.

The informal gold trade has historically existed in India, but the recent duty increase has revived it, particularly ahead of wedding and festival season from mid-October to early March.