Gold imports, which have become a hurdle for the government in managing the ballooning current account deficit, (CAD) are expected to moderate in the next financial year.
While the prime minister’s advisors have projected a 30 per cent fall in imports, industry veterans say a 15-20 per cent fall cannot be ruled out. If prices stay high and if the government announces some more measures to mobilise idle gold in the system, it could be a good substitute for imports. If the projected fall in gold imports is even partially achieved next financial year, it will prove to be a big relief for managing CAD.
According to the report by the Prime Minister’s Economic Advisory Council (PMEAC), $50 billion worth of gold was imported during April-January. For the full year, this figure is expected to be around $58 billion. This includes silver imports, too, which could account for $3-4 billion. No separate data for silver import is available. However, the council has projected gold imports to slide to around $38 billion in financial year 2012-13, which will be in line with figures of $33 billion and $30 billion in 2009-10 and 2010-11, respectively.
In terms of quantity, gold imports were almost same as the previous year. According to data from the World Gold Council, gold import in India in calendar year 2010 was 958 tonnes, while in 2011 it was 969 tonnes. A sharp rise in gold prices, along with a fall in exchange rate of the rupee, made imports higher in value terms.
“The prevailing high gold prices could result in 15-20 per cent fall in India’s gold imports next financial year,” said Rajiv Jain, chairman of Gem and Jewellery Export Promotion Council. If prices fall sharply, rising imports may not look so big in value terms, he added. He, however, believes gold, having sentimental value and used for several rituals in India, cannot see a huge fall in demand. In India, nearly 40 per cent of the gold purchased is for investments.
The PMEAC report also says stabilisation of basic macroeconomic conditions at home is expected to curtail the demand for imported gold. The council has also suggested the government work towards making financial assets like life insurance plans and mutual fund schemes more investor-friendly so that investment demand for gold can be diverted to these financial assets.
However, experts have mooted liberalising gold deposit scheme, which can mobilise idle gold from the system. Gold thus, mobilised could prove to be a substitute for imports. At present, only the State Bank of India has floated such a scheme, which gives one per cent return with a lock-in period.
Bhargav Vaidya, a veteran bullion analyst, said, “More banks, including private sector banks that are aggressive in financing against gold, should be allowed to float such schemes.” He believes private sector banks would be more aggressive in mobilising gold deposits and may offer higher returns as well.