Gold imports in the first three quarters of 2012-13 have already reached the estimates of full-year imports made by the Prime Minister's Economic Advisory Council (PMEAC) headed by C Rangarajan, data have revealed.
The PMEAC had projected gold imports for 2012-13 to be worth $36 billion. According to the Reserve Bank of India (RBI)'s data on balance of payments, gold imports in the October-December quarter have been worth $17.6 billion, while from April to December, 2012, imports have been worth $37.8 billion.
A year ago, in its report for FY12, the committee had, for the first time, raised its concerns over rising gold imports and how this was putting pressure on the current account deficit (CAD). Then, it had projected that, "the value of bullion imports in 2012-13 will be lower at $33 billion, compared to the expected $58 billion in the 2011-12 and more in line with the $30 and $23 billion of the previous two years."
The committee had projected this level with the caveat that measures to incentivise other avenues of savings and discouraging imports of gold should be taken. It was in January 2013 that the gold import duty was finally increased and several other measures to incentivise financial savings taken.
"The government will have to live with higher gold imports till the real rate of interest is increased, which can happen only by lowering inflation. At present, the consumer price index is in double digits, while one-year fixed deposits of banks offer interest rates lower than that. This is a negative return and people cannot afford this to last long. Precisely due to this, investors have moved from financial savings to other assets like real estate and gold," Jayanth Varma, professor at the Indian Institute of Management, Ahmedabad (IIM-A) told Business Standard.
This logic has support. The World Gold Council (WGC)'s global Managing Director for jewellery, David Lamb, had said recently in an interview to Business Standard that imports this calendar year would be higher compared to the previous year, as falling gold prices are seen as an opportunity to buy more gold.
"I do not see any possibilities of more measures on the trade side to curb gold imports, as India has liberalised imports and exports significantly in the last two decades. Hence, import curbs for gold which were possible in the '80s and '90s are not easy nowadays," Varma said.
He also sees gold buying for investment as an indirect flight of capital from India. "Gold buying for consumption, that is, for jewellery, is understandable as that is an Indian cultural habit. But, there is no culture in India of an investment demand for gold," Varma said.
According to data compiled by the WGC, of India's total gold demand, 40 per cent is for investment. Since gold demand is met by imports which are paid for in dollars, gold buying for investment is indeed a flight of capital from the country.
An authentic estimate of gold imports in the January-March quarter has not been made available so far. If imports remain at the level of last year's March quarter (228 tonnes), which is very likely, the import bill will be $12 billion.
International gold prices in Q4 of FY12 were $1674 an ounce. These declined to $632 this March quarter. At this rate, the total gold import bill for FY13 will be around $50 billion.