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Likely fall in gold imports a positive for trade deficit

India’s gold imports may decline up to 10 per cent year on year in 2019, bringing some relief to the government on current account deficit (CAD), said experts. India’s CAD widened to $57.2 billion, or 2.1 per cent of GDP, in 2018-19 from 1.8 per cent a year ago.

The government increased import duty on gold in the July 5 budget to 12.5 per cent from 10 per cent in an attempt to deter imports, said Shekhar Bhandari, business head of global transaction banking and precious metals at Kotak Mahindra Bank. “This will bring down investment demand significantly, though jewellery offtake will continue largely to meet wedding demand in the country. We expect imports to come down 5-10 per cent (40-80 tonnes) this year,” he said.

India imports around 800 tonnes of gold annually. In June, gold imports increased 12.6 per cent from a year ago to $2.69 billion amid a jump in global prices to six-year highs. However, imports were 44 per cent lower than $4.78 billion in the previous month.

Saurabh Gadgil, chairman, PNG Jewellers, said that imports may fall more than 10 per cent if gold prices keep rising owing to geopolitical tensions. “It is not only the import duty. International prices are moving constantly. Unless prices correct, demand will not pick up, further pushing down imports. People may recycle old gold to meet wedding demand – which will have an impact on imports.”

Other analysts, like Gnanasekar Thiagarajan, CEO, Commtrendz Research, said imports may come down 5 per cent. However, unlike Bhandari, Thiagarajan said that increased gold prices owing to higher duty will attract investors and bring down jewellery demand. “The market was not ready for a hike in duty, but gradually it will absorb it. Investors take interest in gold when prices move up as they feel that the metal has gathered some momentum,” he said. In the first quarter of 2019, wedding purchases and lower prices had lifted gold jewellery demand to 125.4 tonnes, up 5 per cent year on year, even as the first half of the quarter was subdued.

Courtesy: Economic Times

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