Gold imports soar 450% in India

(October 15, 2014 - by Shivom Seth)

Imports at a new high; September trade deficit widens on gold imports.

Mumbai (Mineweb) - The Indian government has been proved right once again in not lifting its curbs on gold. Trade deficit has widened the most in 18 months, as imports of the precious metal have surged.

Gold imports jumped about 450% to a new high of $3.75 billion in September (versus $682.5 million y/y). In August 2014, gold imports stood at $2.04 billion.

This as the trade deficit widened to $14.25 billion in September, from $10.84 billion a month before.

Falling inflation might just not be enough, say trade experts. With a muted export performance in September, the trade figures have raised concerns of worsening external account, especially if the global economy continues to remain sluggish. 

Exports rose 2.73% in September to $28.9 billion, while merchandise imports climbed nearly 26% year-on-year to $43.2 billion, according to data released by the commerce department. While gold and oil have pushed the import bill up by 26%, exports rose a mere 2.73% in September.

During the April-September period, exports stood at $163.70 billion as compared with $153.75 billion during the corresponding period of the last fiscal. Imports were at $234.10 billion as compared with $230.48 billion last year. 

Former finance minister P Chidambaram has also been proved right, yet again. He had vocally advocated against lifting the curbs on gold imports at a recent event, maintaining that the benefits accruing from restrictions would far outweigh problems like the spurt in gold smuggling.

In Mumbai to campaign for the Maharashtra Assembly polls, Chidambaram had stated that the benefits of the gold import curbs were too big to be sneezed at. Dismissing the high incidences of gold smuggling across the country, he said smuggling would come down if more gold was available to retailers via the regular channels.

With the high gold imports affecting current account deficit, the previous government, of which Chidambaram was a part of, had hiked import duty on gold three times to 10%. Among other measures, it had also compelled importers to export a sizeable part of the commodity under the 80:20 rule.

This fiscal had seen some correction in the 80:20 rule, following a massive reduction in current account deficit.

Analysts have however warned that the current account deficit would shoot up again, and keeping it in check would be a major concern for the government as big purchases are expected during Diwali and Dhanteras at the end of this month.

The demand for the precious metal traditionally rises ahead of Diwali and Dhanteras when it is considered auspicious to buy gold for ceremonial purposes and for gifting during the festive period.

Inflation slows

Rafeeque Ahmed, President of the Federation of Indian Export Organisations (FIEO), said that falling inflation might just not be enough. He spoke on the fall in the wholesale price index based inflation to its lowest level in five years at 2.38%. 

He added that credit off-take has ebbed to a low of 9.7%, from 17.6% vis-à-vis the corresponding period of last year, and that investments have barely picked up to 12.6%, as compared with 8.4% in the previous year.

The FIEO chief noted that through India’s apex bank, the Reserve Bank of India’s decisive policies have improved the macroeconomic scenario, and both capital account and fiscal deficits have been reigned in, “resurrecting the economy from existing inertia is the need of the hour.’’

Besides gold, big contributors to the import bill were non-oil items, with imports rising 36.2% to $28.65 billion in September, as compared with the corresponding period of last year. Oil imports rose 9.7% to $14.50 billion year on year.

Speaking about the softening of crude prices, Ahmed said it was a good sign for the Indian economy and had also contributed to a decline in petroleum exports. 

A sector that normally would have registered around 15% growth has exhibited a 13% decline. This, he said, had impacted overall exports growth. Moreover, with the WTO cutting its global trade forecast for 2014 to 3.1% against 4.7% predicted earlier, the 1.6% reduction did not argue well for the Indian economy.

Trade body EEPC India Chairman Anupam Shah said sustaining a smart growth of over 20% in engineering goods, as in September, would be a big challenge for India, in the face of signals from Germany, of poor performance. Besides, he added, the US economy too has been propped by the easy money policy of the Federal Reserve which may end soon.