Unofficial gold imports might be substantially lower: Somasundaram P R

Interview with Managing Director-India, World Gold Council

The World Gold Council has issued its report on demand for the March quarter. Its India managing director, Somasundaram P R, spoke to Rajesh Bhayani. Edited excerpts:

On unofficial imports:
We have seen a rise in gold demand and imports compared to Q1 of 2014 and one reason is removal of import controls. That has helped bring more through official channels. We estimate that unofficial import of gold could be substantially lower this year, though the 10 per cent arbitrage of import duty is still attractive enough, and the network set up for unofficial import will thrive when seasonal demand picks up. According to WGC data, net gold import in Q1 of 2015 was up 28 per cent to 226.9 tonnes and last year's import was 891.5 tonnes. This is inclusive of unofficial imports.

On total demand for 2015:

India’s gold demand in 2014 was 811.1 tonnes and in Q1 of 2015, was 191.7 tonnes. During the year, we estimate demand to be in the range of 900-1,000 tonnes, as the economy is estimated to grow at 7.5-plus per cent. Gold prices are also lower, year to date, by six per cent. which will also result in higher demand.

Impact of lower rupee:
With the rupee starting to depreciate, the gold price in local currency terms is higher. This is a good cushion for Indian consumers against any cut in import duty, as a lower rupee will not let gold prices fall. A falling rupee could also act as a hedge against any inflationary pressure. With a falling rupee, gold performs better among other asset classes for Indian consumers.