India's gold imports have declined 40 per cent so far this calendar year, due to subdued consumer sentiment on record high prices and the fear of measures by the government to curb imports to restrict the current account deficit (CAD).
Bullion dealers estimate the total imports at 350 tonnes in the seven months. Adding to an estimated 100 tonnes in the next two months, the overall import is seen at 450 tonnes by September.
Data from the World Gold Council (WGC) showed total import in the first six months of 2011 at 553 tonnes, up to a staggering 753 tonnes by the end of September 2011.
"This year, the overall import may not surpass 450 tonnes by September on reduced consumer sentiment," said Prithviraj Kothari, president, Bombay Bullion Association, the premier traders' body.
In India, the effects of the global slowdown are evident through both domestic growth and local prices. India currently faces a bout of high inflation coupled with slow economic growth and currency weakness supporting sticky inflation.
Consumer demand was relatively weak this year as the Reserve Bank of India is planning to introduce an instrument which might offer returns equivalent to gold. The yellow metal has offered almost 100 per cent return in the last three-four years, resulting in an increase in its imports.
Meanwhile, gold prices hit a high of Rs 30,295 per 10g in Mumbai's Zaveri Bazaar on June 19 from a modest beginning of Rs 27,175 per 10g early this year. Standard gold hit the benchmark Rs 30,000 per 10g again on Monday in mid-trading session, but closed with a marginal gain at Rs 29,765 per 10g, a marginal rise from Saturday.
At this level, gold has offered 11.5 per cent return in rupees. Since the rupee depreciated to trade currently at 55.5 versus the dollar, the return in the US currency was lower at 4.4 per cent at the current price of $1,607 an oz.
"Jewellery buyers remained largely absent from active purchase for the last several months due to high volatility in the local market. If prices remain one side up or down, consumers book afresh amid concerns of further rise or fall. But, in the case of volatility, consumers await stability to order new ornaments. Hence, jewellery buyers currently await a clear direction before placing fresh purchases," said Umesh Parekh, managing director (MD) of Shree Ganesh Jewellery House, a Kolkata-based manufacturer and retailer.
India imported a record 969 tonnes in 2011 while domestic demand stood at 933.4 tonnes, down from 963.1 tonnes in 2010, WGC data showed.
Rising gold imports widened the CAD as consumers opted to invest more in the yellow metal. Consequently, for 2011-12, CAD was $78.2 billion, deeper than the $46 billion in 2010-11.
"Gold is purchased through cash. Hence, gold imported by the nominated agencies, including banks, should be disposed of within weeks, which does not happen normally during the lean monsoon season. Therefore, imports remained low so far this year," said Rajesh Mehta, MD, Rajesh Exports, one of the largest gold jewellery manufacturers and retailers in India.
Kothari hoped demand for gold would go up by September due to the festival season and beginning of investment in India's manufacturing sector. The scheduled mega exhibition, the India International Jewellery Show in August, is also set to boost some orders during the quarter and set the trend for the rest of the year, he said.