Gold import had a small export component in Oct-Nov

The domestic demand for gold, which was very low for most of 2016, increased after demonetisation because even after the old high-value notes were banned, people used them to buy gold, and the wedding season was starting.

Before this, gold traders and export houses exported most of the gold that came to India.

In the September quarter, the share of gold imported for export was 55 per cent of the total import, lowest in at least two years. The exports were value-added jewellery or part of round tripping, which is export without much value addition.

The bullion trade was very thin since February and the average monthly import was 25-30 tonnes. However, during the days of low demand, the amount smuggled was estimated at around 15 tonnes a month and this gold was sold in the market at a heavy discount, which reduced the official discount market also. That was also a factor in incentivising exports.

According to the data from GFMS Thomson Reuters, duty-free import for export fell to just 18 per cent of the total import in October and in November it further fell to 16 per cent.

In December, according to market sources, overall imports are estimated lower, at 35 tonnes, amid lower domestic demand, because of raids by the income-tax department on jewellers and people shied away from buying gold to stay away from I-T scrutiny. After the initial flush of buying gold with denotified currency, purchasers ran short of cash.

Exporters and export houses bought gold at a 3-4 per cent discount in the September quarter and exported it to countries where there was no discount. This had helped in levelling discount to an extent and in October, ahead of Diwali, when gold demand from rural India went up and, along with it, the demand on account of festivals. 

The market was also either quoting marginal premiums or small discounts and hence the export share in the official import declined in October and the trend continued in November.

In October, the Director General of Foreign Trade had imposed restrictions on gold exports by not permitting exports from special economic zones to be calculated for getting star trading house status. However, exporters continued whatever they could export from export-oriented units.