As policymakers struggle to restrict gold imports, there could be more trouble ahead as the gap between the country?s gold imports and exports has been widening almost steadily in recent years. The share of India?s gold exports in its imports of the precious metal has dropped to roughly 34% in the last fiscal year through March from 41.6% five years before, which suggests domestic consumption is soaring.
India, the world?s top bullion consumer, barely produces gold and depends on imports to cater to both domestic and export demand. It purchases the precious metal from overseas and exports value-added products such as jewellery, medallions and coins.
While the country imported gold worth $20.7 billion in 2008-09, its exports of jewellery, medallions and coins were to the tune of $8.61%. However, the exports touched $18.28 billion in the last fiscal year, compared with the imports of $53.82 billion, although 2012-13 was better than the previous year.
The situation may spell trouble for policymakers as elevated domestic demand enhances the country?s reliance on imports, while a slowing pace of growth in gold exports helps widen the trade deficit and ultimately affect the current account deficit (CAD).
The country?s CAD scaled a peak of 6.7% of the gross domestic product in the quarter through December 2012 and hit a record 5.3% in the first three quarters of the last fiscal.
Last month, the World Gold Council had said the country?s gold demand could come in at the upper end of the 865 tonne-965 tonne range in 2013 because of the price crash in April. India?s bar and coin investment rose 52% to 97 tonne during the period, while jewellery demand reached 160 tonne, the WGC said recently.
Global gold prices crashed to their meanest in more than two years at $1,321.35 an ounce in mid-April as signs of an economic improvement in China and the US had driven up stocks, and apprehensions that debt-hit European nations might cut gold holdings to save their economies had prompted investors to dump the haven asset.
However, a drop in prices witnessed buyers scrambling to lift gold in the physical market, especially in Asia, helping keep demand for the precious metal robust.
A worried government raised the import duty on gold to 8% earlier this month from 6%, effectively raising the tax by eight times since January 2012. The RBI has also put restrictions on canalising agencies such as MMTC and STC to import gold on consignment basis. The measures came after gold imports in the first two months of the current fiscal averaged a record 152 tonne, compared with 70 tonne in 2012-13.
According to bullion industry executives, gold demand usually starts slowing down between mid-May, after the Akshya Tritiya is over, and July as there are no festivals and marriages during the period.
