Gold imports may fall 40% to decadal low

FY14 imports seen as 40% lower at 515 tonne compared to FY13

Gold imports in the current financial year could be lower by 40 per cent at 515 tonnes against 846 tonnes a year ago. This will be the lowest in 10 years. In December, imports are expected at 20 tonnes. While this will help curtail the current account deficit, it is a bad piece of news for jewellers who have to buy gold at huge premiums or smuggle it.

Traders attribute the fall to gold controls, including linking imports to exports, known as the 80:20 rule (20 per cent to be exported) and a 10 per cent custom duty. Imports surged in the first two months of the current financial year to 304 tonnes, but following a strict import regime, these have plummeted since June. From June to December, net imports have been 152 tonnes, half the April-May figure of 304 tonnes. The trend is not looking any better in the March quarter in which the industry expects 60-70 tonnes of imports.

“The volume of imports is less likely to change till the 80:20 principle exists, irrespective of an import duty cut. It has capped imports at 25 tonnes a month,” Sudheesh Nambiath, India analyst, GFMS Thomson Reuters, said. The finance ministry had recently said that import restrictions will not be lifted in the current financial year.

The controls have resulted in a spike in smuggling and premiums for physical delivery. However, in the last month, imports of gold jewellery have risen. The Gems and Jewellery Trade Federation said it was more viable to import jewellery after paying a 15 per cent duty rather than paying 9-10 per cent as premium to get physical delivery of gold.

A year ago, the premium to get physical delivery in the Indian market was a per cent, but for a few months, the premium has been 10 per cent. The premium was $150-170 an ounce a fortnight ago against the spot global price of $1,230, which works out to 12-13 per cent. Of late, the premiums are down because of buzz the government is considering cutting the duty. On Wednesday, the premium was $110 an ounce. The prices quoted in the Indian market are inducing this spot premium.

Another reason for the correction is the import of gold by Non-Resident Indians (NRIs) who can import up to one kg by paying a 10 per cent duty. Traders are using them to bring gold in the country as even after paying the duty they save on the physical market premiums. In last month, imports by them are estimated to be three tonnes, 15 per cent of the imports in December.