Given the near-doubling of gold imports, from $2.6 billion in March 2014 to $5 billion in March 2015, it is tempting to think the government did well not to reduce import duties—indeed, one view is that India was in too much of a hurry to remove various import curbs. That is a short-sighted view. Gold imports in March were unusually high primarily because they were extraordinarily low in the few months preceding it since buyers postponed their purchases on the assumption that import duties would be cut in the Budget in February. When they were not, the pent-up demand got pushed to March, and the fact that Akshaya Tritiya falls in April also ensured the demand grew—in other words, it is unlikely the March demand for gold will get repeated in April or the following months. Indeed, despite the March surge, gold imports for the full year were 8% higher than in FY14 at $34.3 billion. Compare this with the $56.5 billion of imports in FY12 and $53.8 billion in FY13, and it is clear gold imports are under control since, with gold losing its lustre—gold prices fell from $1,826 per troy ounce in August 2011 to $1,192 currently—there is little investment demand for it. Indeed, Citibank estimates FY16 imports of gold at $33 billion or marginally lower than in FY15. With gold imports under control, there is no reason why households have to be penalised by paying a 10% import duty—if the economy is still not robust enough, and with fixed deposits losing their lustre, forcing households away from gold is another form of financial repression.
Similar caution has to be exercised while looking at overall exports which, in March, fell 21%—for FY15, total exports fell 1.2%. While it is easy to blame this on a strengthening rupee, once exports are adjusted for the fall in oil prices—oil exports are around a fifth of India’s exports basket—exports rose 1.3% year on year. This is an anaemic performance and way below what is being targeted, but a lot of this has to do with poor global growth, a more important driver of exports. With the IMF’s latest WEO looking at a global growth of 3.5% in 2015, this is way below the 5% average for the 2003-07 period—within this, growth projections for the US have been reduced to 3.1% as compared to 3.6% in the last forecast. More importantly, global trade is projected to rise at 3.7% which is a far cry from the 6.8% growth seen in the 1997-2006 period. A JPMorgan analysis of the exports data finds the largest deceleration in exports has been in engineering goods which is more sensitive to global demand than to exchange rates. In the long run, if Indian exports growth has to pick up, India needs to be part of global value chains, and trade agreements such as the TPP, since most global trade takes place between firms, not countries.