NEW DELHI: Indians’ love for gold has often gone against the country’s financial health -- with a large part of the demand for the precious metal being fulfilled through imports.
The 331% year-on-year increase in gold imports to $15 billion in November has not only resulted in a record trade deficit during the month, it has also put pressure on the rupee, which has been shy away from the 85-a-dollar level. The unprecedented increase in gold imports has left many analysts clueless as they feel festive demand alone cannot explain the jump in gold imports.
According to Nomura, the rise in gold imports this November cannot be explained by festive demand alone, and “it represents a meaningful step up in gold purchases for reasons unclear to us.”
However, some analysts have come up with plausible reasons for the sudden increase. Gaura Sen Gupta, chief economist, IDFC FIRST Bank, and Ajay Srivastava, founder, Global Trade Research Initiative (GTRI), have partially attributed the import duty cut from 15% to 6% in the July budget to this increase in gold imports.
“The reduction of import tariffs from 15% to 6% in the last Budget, aimed at checking gold imports from Dubai, has further incentivised imports,” says Ajay Srivastava of GTRI.
After reduction in import duty in July 2024, gold imports kept increasing month-on-month. In August, gold imports more than trebled to $10 billion from $3.1 billion in July.
After a fall in September (to $4.4 billion) due to Pitru Paksh, the growth in gold imports resumed with $7.1 billion in October and $14.9 billion in November.
But there are other reasons as well for the country’s gold imports bill to surge. Crisil believes high global prices have added to India’s gold import bill. International gold prices of rose from $2,300 an ounce level in July 2024 to 2,700 levels in the first half of November. The prices on average hovered around $2,650 in November.
Ajay Srivastava of Global Trade Research Centre (GTRI)says the India-UAE Comprehensive Economic Partnership Agreement (CEPA), effective since May 1, 2022, has also contributed to the surge.
According to him, CEPA allows unlimited duty-free imports of gold, silver, platinum, and diamonds into India over the coming years. India’s imports of gold and silver from the United Arab Emirates have surged by 210 percent, reaching $10.7 billion in 2023-24.