India’s Gold Imports Decline In May: Rupee Slide Helps More Than Curbs

India’s net Gold Imports have fallen from an average of $135 million in the first half of May to $36 million in the second half, said Finance Minister P. Chidambaram today. He added it should have a positive impact on markets, and that the performance of crude oil, natural gas and fertilizer sectors are key concerns for the government. A fall in Gold Imports will bring much needed relief to the markets and the government, which has of late adopted several measures by hiking import duty to 8%, among others, to curb Gold Imports in order to bring down the current account deficit. India raised the duty on gold imports to 8% from 6% earlier, and the RBI has also placed restrictions on overseas purchases on a consignment basis, and limited gold imports for local consumption against cash only. Tougher regulations imposed by India on Gold imports finally started showing results as the country’s net Gold Imports have finally declined. This may not only be the result of imposing major curbs on Gold imports, but of collective developments.

Higher Gold prices on Rupee slump lowered Gold Imports:
Gold Imports are likely to fall further below 50 tons this June due to the sharp decline in the exchange rate of the INR – Indian Rupee. The Rupee had plummeted on Wednesday to all-time low of 59 against the U.S. dollar making Gold Imports costlier. This weakening of rupee will increase the landed cost of Gold bullion in India and thus have some impact on the volumes of Gold Imports in June as well as in July. Besides weakening of the rupee, any rise in Gold Prices in the international markets may also have an impact on global demand for the metal, leading to lower Gold Imports worldwide. Gold Prices on the Multi-Commodity Exchange (MCX) had tumbled to Rs. 25,300 on April 16, but have steadily been rising ever since. The depreciating Rupee has added to the rising Gold rates and MCX Gold for Aug contract was quoted at Rs. 28,186 today, a rise of around 12% since the April meltdown. This rise is likely to curb further appetite for Gold, making a case for lower Gold imports.

Gold demand in India is likely to pick up around August again before the advent of the major festive seasons of Dashera and Diwali. As of now, the monsoons appear to be perfectly on time, and this may also further boost up demand for Gold Jewelry and coins.

Finance Minister P. Chidambaram also welcomed Wednesday’s measures from the market regulator to increase government debt limits for long-term investors, and said Indian bond yields should still be attractive to foreign investors.