After sharp increase in gold import in April-May gold imports are likely to come down significantly in June. RBI blocked consignment import route for domestic market and the central government imposing 2% additional import duty is expected to result in fall in gold import in June.
A veteran bullion analyst said, "In June hardly 40 tons of gold will be imported as there was huge carried forward stock of gold in the market from past two months." Gross import of gold in April and May were 144 tons ($7.5 billion) and 162 tons ($8.4 billion) respectively.
Demand for gold was estimated at 120 tons and 75 tons in first two months of current fiscal respectively. Import in May was much higher there was heavy import under consignment route by non bank nominated agencies ahead of expected RBI curbs.
Over 100 tons of stock of gold has been carried forward which has resulted in sharp fall in gold imports. June to August season is however seen as lean season for gold demand and hence lower gold import bill will continue for some more months.
Since part the payment for part of this gold imported in May under consignment route was due in June. Value of gold import in the Month of June would have been confined to $2 to $2.5 billion. This means trade deficit in June on account of lower gold import would have come down by $6 billion but payment for past month import may still keep June deficit lower by $4 billion.
Rahul Bajoria of Barclays India said, "We expect gold demand and, hence, imports to be significantly lower in June, and possibly remain low in coming months. The widening of trade deficit in May might mark a near-term high for the trade deficit, and we think it could narrow significantly in June."
Aggreeing with the Barclay view on falling gold import and as a result expected fall in current account deficit, 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 from the exchange rate point of view.