India imported $39.5 billion of gold in first nine months of this fiscal, but exported gold jewellery worth one-third of that amount despite higher value of finished products, clearly showing that the yellow metal was used to hedge against inflation in the backdrop of volatile markets and lack of other attractive options.
India exported gold jewellery to the tune of $12.12 billion in the first nine months of this fiscal, just 30.68 per cent of the value of imported gold, Ajay Sahai, CEO and director general of exporters body Federation of Indian Exporters Organisations (FIEO) said.
Analysts said gold jewellery often has other embedded metals or stones such as diamond, so value of gold parts in those exports would be much less than even the $12.12-billion figure.
In value terms, however, growth in gold imports matches with expansion in exports of jewellery made of the yellow metal in the first nine months of this fiscal.
For the first nine months, gold imports witnessed 40.23 per cent rise over $28.16 billion imported in April-December period of last fiscal.
Exports of gold jewellery also saw similar expansion. Gold jewellery exports were up 41.59 per cent over $8.56 billion in the corresponding period of last fiscal. So growth in value of gold import and export of jewellery roughly match.
However, when it comes to volume-wise figures, import of gold was 20 per cent till December against just 4-5 per cent increase in gold jewellery exports, Sahai said.
According to the Prime Minister's Economic Advisory Council (PMEAC), gold imports were one of the reasons to push India's current account deficit (CAD) to a level even higher than 1991 balance of payments (BoP) crisis period. Much of this has gone for investment purposes as India had high inflation till November of this fiscal at over nine per cent rather than for exports of finished jewellery.
India's CAD is expected by PMEAC to climb to to 3.6 per cent of GDP, worse than 3 per cent in 1991 when the BoP crisis had jolted the Indian economy.
The council expected CAD to rise to $63.2 billion this fiscal, higher by $18.8 billion against $44.4 billion last fiscal. Gold imports, according to the council, are expected to rise to $58 billion, $25 billion higher over $33 billion last fiscal.
If much of the rise in gold imports could be stalled this fiscal, CAD would not have been as high.
"The import of gold, which is viewed by many, if not most, Indian buyers as an investment object, forms a large component in overall imports and variation in this element accounts for a very sizeable component in the change in CAD," PMEAC said.
The PMEAC had pegged gold imports at $58 billion this fiscal against $33 billion last year. But, Sahai said the council had taken both gold and silver in its computations. According to him, gold imports will be around $50 billion this fiscal.
The council expected gold imports to fall to $38 billion next fiscal as stability in the macro economy, witnessing low economic growth and high inflation this fiscal, is likely to come.
Sahai said gold imports have already started coming down. In January, it was down 20 per cent in volume terms. He attributed this to revival in stock markets and change in duty structure by the government.
The Sensex posted the highest January rise in 2012 in the last 18 years.
In December, the government has restructured duty structure in gold imports, imposing it on ad valorem basis against specified earlier. Earlier, the government used to impose imports duty at Rs 300 per ten gram, but from December it replaced it with two per cent on the value of gold imports.
World Gold Council expects India's demand for gold to moderate but it is not expected to be sharply lower. "India's importance in the gold market will not diminish, even if demand growth softens. Not only India is a key player in the global gold market, but the domestic drivers of gold demand are largely independent of outside forces."
It said a lower number of auspicious days in the 2012 Hindu calendar relative to recent years is likely to temper gold demand to some degree.
PMEAC suggested that attractiveness of other financial products be raised to reduce the appetite for gold.
