Rising gold import is adding to worries of the Indian government, which is struggling to contain its widening current account deficit (CAD) amid depreciating value of rupee against the US dollar.
Gold imports during the first half of the current financial year 2018-19 rose about 4% to $17.63 billion, pushing the country’s trade deficit $94.32 billion in April-September 2018-19 as against $76.66 billion in the same period last year, according to the commerce ministry data. Rising gold import is adding to worries of the Indian government, which is struggling to contain its widening current account deficit (CAD) amid depreciating value of rupee against the US dollar.
CAD — the difference between outflow and inflow of foreign exchange — widened to 2.4% of the GDP in the first quarter of 2018-19. Meanwhile, the rupee has also touched its life-time low and has depreciated more than 15% since the beginning of 2018.
Gold imports were reported at $16.96 billion in the April-September period of the current financial year 2018-19. Gold imports were in negative territory till June this year and started clocking double-digit after that. In the month of August, it surged by 51.5% to $2.6 billion.
India is the largest importer of gold, which primarily caters to the demand of the jewellery industry, as the country imports 800-900 tonnes of gold annually in volume terms.
As part of its efforts to mitigate the impact of rising gold imports on CAD and trade deficit, the government took certain measures to reduce the inbound shipments of the yellow metal, including the restriction on duty-free gold imports from South Korea, which was allowed under the existing India-Korea free-trade agreement.
Other measures taken by the government include levying self-use condition on Premiere Trading House/Star Trading House authorised to import the precious metal (gold) directly from overseas bullion supplier.
Also, after raising import duties on 19 ‘non-essential’ items last month, the Narendra Modi government recently hiked import duty on selected communications items in order to check mounting CAD and depreciating rupee by curbing imports.