The fall in gold imports sixth month in a row will reduce the trade deficit and strengthen the already strong current account deficit (CAD) situation at a time when the global economy is still facing challenges.
Thanks to the sluggish demand, gold imports in the country is witnessing a significant decline now after rising to the $34 billion level in FY15 and FY16 from $28.9 billion in FY14.
According to a Reuters report, India’s gold imports fell for a sixth straight month in July – it is estimated at 20 tonnes in the month, which is the lowest since March and down by more than 79% from the same period last year.
With the oil import situation remaining comfortable with Indian basket crude at $40.33 per barrel, lower gold imports means a big plus in terms of trade deficit and current account deficit (CAD), especially at a time when the global situation is failing to improve and is expected to remain this way for a longer period of time than anyone has imagined.
As against $7.5 billion in the April-June quarter of FY16, gold imports in the same period this year has been just $3.9 billion.
This is significant as its share in the total import bill, second largest after oil, in FY14 was 6.38%, which rose to 7.68% in FY15 and 8.33% in FY16.
The trade deficit is already on a downward path – from $147.6 billion in FY14, it came down to $144.9 billion in FY15 and further declined to $130.1 billion in FY16 – and lower gold imports will only help it go down further in FY17.
In the first three months of the current financial year, the trade deficit has decreased from $32.7 billion in Q1FY16 to $18.3 billion.
In effect, all this would result in a more supporting CAD situation for India, which is already being seen as a bright spot in terms of growth in the sluggish global growth atmosphere.
From a worrisome 4.8% of GDP in FY13 due to high oil and gold imports, it came down to 1.7% in FY14, 1.3% in FY15 and then to a comfortable 1.1% in FY16.
So, gold is certainly a good news for prime minister Narendra Modi dispensation, especially when the government needs resources to boost growth prospects.