Why gold imports into India almost tripled last month
Correction in gold rates and a robust demand during the marriage season were attributed to the spike in gold imports into India
PremiumGold imports into India tripled in June from year-earlier levels, a report said, citing sources. The country had imported 49 tonnes of gold in June, compared with 17 tonnes a year earlier, Reuters reported, citing sources. In value terms, June imports surged to $2.61 billion from $969 million a year ago but in overall gold imports into India dropped to 335 tonnes in the first half of 2022 from 493 tonnes last year, the report said.
Analysts attributed the surge in imports to correction in prices and jewellers replenishing inventories after robust sales during marriage and festival season. India’s trade deficit widened to record high in June as high global commodity prices further raised the import cost of goods such as oil and gold. The gap between exports and imports rose to $25.63 billion in June, from $24.3 billion in May, showed preliminary data released by the Commerce Ministry. India meets most of its gold demand through imports. That has put pressure on the rupee and trade deficit.
According to World Gold Council, retail demand in India remained strong during the first three weeks of the May due to wedding- and festival-related purchases. “Retail demand remained strong y-o-y during the first three weeks of May due to robust Akshaya Tritiya sales, wedding demand and the lower base period of 2021.3 But demand softened during the last week of the month due to a higher gold price and fewer auspicious marriage dates," said Mukesh Kumar, Senior Analyst, India World Gold Council.
After hitting ₹53,500 in mid-April, gold prices hovered near the ₹51,000 levels for most part in June.
The government on Friday tightened oil exports and import of gold in an effort to rein in a worsening deficit and tame rupee’s record fall. Basic import duty on gold was raised to 12.5% from 7.5%. Immediately after the hike, domestic gold prices surged 3% on Friday to ₹52,032 per 10 grams and since then have been hovering near those levels.
However, analysts say that the hike in gold import duty could weigh on domestic retail demand. In the short-term gold demand could fall, said Surendra Mehta, secretary at the India Bullion and Jewellers Association (IBJA).
“The government action was primarily to reduce imported gold consumption. Focus to preserve foreign exchange reserves and with concerns on the increasing trade deficit. When the Customs duty was @7.50% the overall import charges was @10.75% {Agri/Infra Cess (2.50%)and Social Welfare Surcharge (0.75%)} ; Now the same works out to @16.25% ; Thus a load increase of @5.50%. Apart from this the present 3% GST is also applicable which makes the imported gold price unviable, especially when there is a lackluster demand," said NS Ramaswamy, Head of Commodities, Ventura Securities Ltd. (With Agency Inputs)
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