India's gold imports hit $2.9 billion in July, up from $2.45 billion in June, official data showed on Monday, confirming Finance Minister P. Chidambaram's fears that despite hikes in import duties and steps by the Reserve Bank of India (RBI) to stem supply, demand is on the rise again.
Chidambaram wants to curb gold purchases because they are the most costly non-essential item that India imports and have helped push the current account deficit to a record high, undermining government attempts to stabilise the economy and the rupee ahead of elections.
India imported $2.9 billion of gold and silver in July, up from $2.45 billion in June, and even though that was down a third from July last year, it comes on the back of record imports in April and May and despite rising domestic prices in July. Silver is a tiny fraction of the imports.
While India will almost certainly yield its title of biggest bullion buyer to China this year, jewellers are concerned that imports are still too high for the government's comfort and that it might take more measures to curb them further.
The RBI last moved on July 22, when it stipulated that 20 percent of gold brought into the country must head out again as jewellery - a move that has dried up supplies and stalled business as traders wait to find out how the rule will work.
Demand in the country remains strong, however. Gold is still a must-have at weddings and festivals, which get into full swing in the next few months.
EFFECT ON NEIGHBOURS
There are signs now that Indians may be bringing in gold through neighbouring countries, pushing their imports sharply higher as well and prompting action by their governments.
Pakistan has slapped a one-month ban on gold bought to make jewellery for export after its imports jumped 386 percent in the first half and topped $514 million in July alone - more than double what it bought in the first six months of 2012.
"The difference in import duties seems to have provided the incentive for increased duty-free imports in Pakistan and smuggling to India," a statement on the finance ministry's website said.
The Pakistan government will look at steps to quickly get rid of these loopholes, the release on the website added.
Sri Lanka imposed a 10 percent import duty on gold at the end of June to stop an arbitrage opportunity with India amid what one official called "leakages".
Sri Lanka's imports of gold jumped 46.7 percent from a year ago to $110 million in the first four months of this year. It imported gold worth $50 million in April alone, provisional data from the central bank showed.
International gold prices rose about 8 percent in July, their biggest monthly jump since January 2012, while India's domestic prices rose about 9 percent during the month.
Nepal hiked its import duty on gold in July to 3,600 Nepalese rupees from 3,000 rupees per 10 grams. About 35 kg of gold was seized en route to India in July, up from 12 kg in January and taking the haul for the first seven months to over 59 kg, according to government figures. Last year, some 12 kg was seized on the route.
Nepal's official imports of gold rose to $314 million in the 11 months to mid-June this year compared with $275 million in the same period last year.
In Bangladesh, gold carries a whopping 58 percent tax and smuggling is rife. In the last seven months, gold weighing over 300 kg was seized at Dhaka International airport. ($1 = 102.2650 Pakistani rupees)