'Modi effect' aids surge in gold import

October bill for yellow metal up 280% y-o-y to $4.2 bn, silver inflow soars in line

India’s gold import bill for October rose 280 per cent over a year before, to $4.18 billion. Imports of silver surged 136 per cent, to $686 million.

These import bills are the highest since May 2013. Apart from marriage and festival-related demand, imports are also rising due to lower prices of both precious commodities.

The World Gold Council (WGC) said the rise in demand for gold over recent months — it has picked up pace since June — was due to the “Modi effect”. It said in a report on the demand trend for the quarter ended September: “General sentiment among the Indian populace is on the up, aided by confidence in the new government. Support for Prime Minister Narendra Modi and his economic policies was palpable. Such optimism appeared to be justified by widespread upgrades to Indian growth forecasts. This provided an encouraging backdrop for gold demand. From June till October, India imported gold.”

From June to October, gold import is estimated at 415 tonnes (of which 115-120 tonnes in October). In September, the gold import bill was $3.75 billion and of silver was $477 million.

What would worry the government is a rise in gold import as a percentage of total import. This proportion was 10.6 per cent in October, from 8.7 per cent in September and 8.1 per cent in June. The total gold import bill has crossed $19 billion in these first seven months of the financial year (April-October) and silver import is estimated at $3.5 billion.

In May, import norms for star and premier trading houses were liberalised. An official of a leading star trading house said the import should not be seen in isolation but in net terms. Deducting the import by export-oriented units and adjusting for the rule that requires 20 per cent re-export of any import consignment, the net import bill for seven months will be in the range of $13-14 billion.

An official from another premier house said, “Star and premier trading houses generally enter sale contracts soon after placing an import order; they don’t keep open positions. Hence, gold imported by them enters the market only and should not be a cause of worry.”

While the rising gold import is putting pressure on the trade deficit, falling crude oil prices are a saving. Sonal Verma, India economist at Nomura, said: “Lower oil prices (lower oil import bill) and lower gold imports in the coming months (as the festive demand normalises) should offset part of the increase and keep the current account deficit contained at around 1.4 per cent of gross domestic product in FY15 versus 1.7 per cent in FY14.”

However, expecting more of an import surge, Union finance ministry officials have already held one meeting with the Reserve Bank on the issue and another is expected shortly.