India's gold imports revived in the July-September quarter, with increase in demand. It was 223 tonnes in the third quarter against 205 tonnes in Q3 of 2011, shows data compiled by the World Gold Council (WGC; their data follows a calendar year).
This is in contrast to a sharp fall in demand during the April-June quarter, when imports fell by nearly half to 153 tonnes from 301 tonnes in April-June 2011.
With the economy poised to grow at below six per cent this financial year, the import rise poses a challenge for policy makers in managing the current account deficit, already facing upward pressure due to a general increase in imports at a time when exports are falling and the rupee is weakening against major currencies such as the dollar.
In 2011-12, the import bill for bullion was $60 billion, with gold imports at 891 tonnes. The Prime Minister's Economic Advisory Committee had estimated a fall this year to below $38 billion, a 37 per cent fall. While official data for imports in value are yet to be issued, WGC data show the first two quarters of 2013 registered 376 tonnes of imports, down only 25 per cent. Their report on demand trends, issued on Thursday, said prospects for fourth quarter (October-December) gold demand were positive.
On Dhanteras, a few days earlier, the Bombay Stock Exchange and National Stock Exchange together had seen deals in exchange traded funds worth Rs 2,200 crore, meaning about seven tonnes of gold.
The government has treated gold as an unproductive asset and imposed a four per cent import duty in two phases in early 2012 to discourage its import. With these not falling as had been estimated, the issue is whether it would take more stringent measures. It will, says Abheek Barua, chief economist, HDFC Bank. He said, "The latest numbers are showing that the trade and current account deficit are coming under pressure and government may have to settle with a CAD of over four per cent of GDP. Increase in imports of gold at this time is certainly a cause for concern from the macro management point of view. The Reserve Bank should think of introducing some instruments to mobilise idle gold, like gold bonds or gold deposits, to replace the import demand. If gold imports keep rising, even then the government may have to consider quantitative restrictions."
Gold bonds or gold deposits give an opportunity to investors to deposit idle gold and earn returns on these. Gold so mobilised by banks or issuers of bonds can be lent to jewellers, to replace demand for imports. Sources in the know said RBI is already considering this option and an internal committee headed by a deputy governor is working on the modalities.