India Likely to Ease Gold Import Duties as CAD Narrows to $138.59 Billion

MUMBAI (Scrap Monster): As trade deficit shortens, India feels no bad to ease its gold import duties. According to government report, the import of gold and silver plunged 40% to $33.46 billion in 2013-14 whereas it was $55.79 billion in 2012-13. It is said that a spiky cut in gold and silver imports has narrowed the trade gap to $138.59 billion from $190.33 billion.

According to Bimal Jalan, former governor with India's central bank, the Reserve Bank of India (RBI), India’s current account deficit (CAD) is cozy enough to lessen the gold import duties. He said that though the current situation is comfortable, demand issues and exchange rate issues may pose threat to the current low CAD situation. The investment should be encouraged in real assets not in gold, he added.

He stated that the precious metal imports had decreased from $7.7 billion in May 2013, to $1.4 billion in January this year. However, the monthly run rate of gold imports has remained above $5 billion since January 2012.

The former governor mentioned that specified the current low price of gold, if imports of gold bound by 20% to 25% in the future, it would not affect India's CAD. Though the government tries to switch investment to other assets, it cannot avoid the public demand for more gold.

According to Sanjay Budhia, chairman of the Confederation of Indian Industry, India has lost its export target of $325 billion for this fiscal, as currently it stands at $312 billion. The real cause behind the deceleration in exports were the control over the gold imports, coupled with its direct impact on the jewellery export, exchange rate volatility and a steep hike in global oil prices. The monetary atmosphere in the US and Euro Zone is not very favorable for exports, he added.

As per the report from the Gems and Jewellery Export Promotion Council, the gold jewellery exports from April 2013 to February 2014 slipped 45.6% to $6.35 billion. However, the exports of gold jewellery rose 1.04% in February for the first time in fiscal 2013-14.