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India's two largest imports - crude oil and gold - saw their prices fall sharply on Friday, raising hopes for the country's stressed balance of payments and fiscal deficit.
Frantic sell-offs in gold pushed the price of the yellow metal to below Rs 29,000 for 10 grammes in the local market for the first time in 11 months. In late kerb deals, gold was quoted at Rs 28,500, against the official closing of Rs 28,890, while on MCX futures, gold was traded around Rs 28,250 per 10 g and silver futures stood at Rs 49, 400 per kg. Trading sentiments for gold in India were hit by the precious metal's sharp correction in markets abroad in the last two days, traders said. Yesterday's holiday in the bullion market restricted speculators from offloading their long positions, they added.
On the global front, the yellow metal came under heavy selling pressure from exchange-traded funds, following upbeat jobless claims data in Europe and amid speculation that Cyprus might sell excess gold to tide over its financial crisis. Spot gold was sharply lower at $1,503.50 an ounce in early trading in the US. Prices fell to $1491, which slightly rebound later.
Brent crude oil sank to an eight-month low of nearly $102 a barrel on Friday as the outlook for global oil demand growth dimmed. Weakening crude oil prices tend to have a positive impact on India Inc.
India currently imports three-fourths of its crude oil requirement. In fact, petroleum oil and lubricants account for a little more than a third of India's import bill, according to government figures.
The easing of gold and oil prices might bring some cheer to policymakers, grappling with fiscal and current account deficits, analysts said. Gold is the second-largest import item for India.
Lower crude oil prices will help reduce oil marketing companies' under-recoveries and the government's oil subsidy burden, which can bring down its fiscal deficit.
The current account deficit for the October-December quarter widened to 6.7 per cent of gross domestic product (GDP), while the fiscal deficit for the 2012-13 financial year was pegged at 5.2 per cent of GDP.
Finance Minister P Chidambaram recently said the current account deficit for FY13 would come down to "more tolerable and acceptable" levels. He added that steps were being taken to check gold import and to encourage exports, to narrow the current account gap. The Reserve Bank of India (RBI) sees a current account deficit of 2.5-3 per cent as comfortable.
RBI Governor D Subbarao has said the twin deficits could come in the way of further policy easing.
RBI is set to announce its next policy decision on May 3 at its annual policy review.
