India’s gold imports tumbled by 30% in the first half of the current fiscal to $20.2 billion, but policy markers fear a recent pick-up in demand for the precious metal could hurt the country’s current account.
India ? the world’s biggest consumer ? had imported gold worth $29 billion in the first six months of the last fiscal. However, elevated prices and a 4% import duty, compared with a meagre R300 per ten grams earlier, kept buyers at bay, reducing purchases from overseas.
The average gold price during the April-September period gained 2.2% from a year earlier to $1,642.4 per troy ounce, according to the official data and a sharp depreciation of the rupee drove up the price further for domestic buyers. The rupee had weakened by more than 18% by end-September from a year before.
“The problem is demand is again rising at a faster pace than we expected, despite high prices. One reason for it could be the festival and the wedding season. However, although imports are unlikely to hit last year’s record level, we still see gold as a major threat to the current account deficit. Even if the imports drop to $40 billion to $45 billion? which is likely to happen? the idle asset will still play a great role in worsening the current account deficit (CAD),” a senior government official told FE.
Record gold imports in 2011-12 helped push up the CAD to a record 4.2% of the GDP in the fiscal year through March. The government hopes to reduce the CAD to 3.6% of the GDP in 2012-13, although the deficit rose to 3.9% in the first quarter of this fiscal.
Gold demand got a boost in July mainly due to the late revival of monsoon and restocking by traders and jewellers ahead of the festive season, the World Gold Council said, adding Indian consumers seem to have adjusted to the rise in prices.
After three successive quarters of decline, gold demand surged 9% to 223.1 tonne in the three months through September, defying an 11% drop globally.
In value terms, Indian demand shot up by an impressive 27% to R65,373 crore in the September quarter from a year before, thanks to a more than 20% depreciation of the rupee.
Industry executives said the rise in gold demand and a fall in the imports during the September quarter suggest jewellers may have offloaded more from their inventories. This means they could ramp up imports in the second half to improve stocks.
