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As international gold prices are quite high (about $1,350/ounce) and importers in the hawala market might record losses in case of a sudden price correction, they have postponed purchases.
Another reason for the fall in the demand for dollars in the hawala market is the fact that in recent weeks, vigilance at airports, etc, has been increased due to the coming general elections, which increases the risk in importing through unofficial routes. Insiders say importing gold through unofficial channels has been an easy way to bring foreign money into the country.
During the elections, some might seek to spend funds that can’t be accounted for and, therefore, not many prefer to hold money in the form of gold.
The premia on physical delivery of gold in the spot market have fallen from $150/ounce after Diwali last year to just $50/ounce (as of Wednesday). This reduces incentives for those trying to bring gold through unofficially channels.
For this financial year, India’s current account deficit is estimated at about two per cent of gross domestic product, while the gold import bill (in dollar terms) is projected at about $25 billion. C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, has indicated a gold import bill of $35 billion is also acceptable. This has led to expectations of relaxation in gold import norms. In case of relaxation, there will more import through official channels, eroding the demand for unofficial gold.
Jewelers have been saying if official imports stand at about $25 billion, these might not be sustainable for the jewellery sector, which has already seen its inventory fall about 10 per cent.
Sudheesh Nambiath, precious metals analyst, GFMS, Thomson Reuters, said, “The contribution of gold to the import bill is expected to be less than $25 billion for 2013-14, the lowest since 2008-09. In tonnage, this translates to about 45 tonnes a month; in other words, it is less than the government’s comfort zone $35 billion a year, current prices. As such, there is a strong case to revisit the 80:20 principle and we expect policy amendments by April, irrespective of the elections. We believe amendments will follow in a step-by-step manner, pulling off certain caps; ensuring policy migrates in a controlled manner and the dollar outflow is predictable, not volatile to seasonality and prices.”
15 tonnes of gold imported in 10 days
Gold import by banks has seen a rise in the first 10 days of this month, it is learnt. Compared with 25 tonnes in all of February, about 15 tonnes of gold is understood to have been imported through official channels between March 1 and March 10. Owing to this, physical delivery premia fell from $120/ounce last month to $50 on Wednesday.
A bullion trader said in the last few months, exports had increased, and this had made banks eligible to import more gold under the 80:20 rule. The Reserve Bank of India’s 80:20 rule mandates importers to channel at least 20 per cent of the imported gold towards jewellery exports.
