After a sharp increase in April and May, gold imports are expected to come down significantly in June, due to the Reserve Bank of India (RBI) blocking the consignment import route for the domestic market and the central government imposing a two per cent additional import duty.
"In June, hardly 40 tonnes of gold would be imported, as there is a huge carried-forward stock in the market from the past two months," a veteran bullion analyst said. A little over 100 tonnes has been carried forward.
The demand in the first two months of the current financial year was estimated at 120 tonnes and 75 tonnes, respectively. Gross import of gold in April and May was 144 tonnes ($7.5 billion) and 162 tonnes ($8.4 bn).
Gold on Mumbai spot market on Tuesday closed above Rs 28,000 per 10g after two months due to the weakness in the rupee. Gold on Tuesday closed at Rs 28,025 per 10g, while the rupee went to an all time low of Rs 58.77 a dollar.
Gold on the Multi Commodity Exchange has also moved above Rs 28,000 and had gone as high as Rs 28,095 per 10g.
The import in May was much higher as non-bank nominated agencies imported heavily under the consignment route, ahead of expected Reserve Bank curbs. The June to August period is seen as a lean season for gold demand and, hence, the lower import bill will continue for some months.
In June, traders who imported gold in May might come forward to book profit, as June gold prices have been higher in India following the sharp depreciation of the rupee and the two per cent extra import duty. The inflow in the domestic market due to this profit booking will keep imports under check, said a trader.
Part of the payment for this gold, imported in May under the consignment route, was due in June. The value of gold imports in June would have been confined to $2-2.5 bn. This means the trade deficit in June on account of lower gold imports will come down by $6 bn.
"We expect gold demand and, hence, imports to be significantly lower in June and possibly remain low in the coming months. The widening of the trade deficit in May might mark a near-term high for the trade deficit and we think it could narrow significantly in June," said Rahul Bajoria of Barclays India.
Sonal Varma, economist with Nomura, said: "Our focus remains on financing the current account deficit, which will be determined by global factors and is likely to be one of the key determinants of the overall economic situation in India." Financing of the deficit is crucial for the exchange rate.