India to Curtail Gold Imports to Ease Deficit Pressure on RupeeSiddhartha Singh and Swansy Afonso
India will contain gold imports below 845 metric tons this year as Asia’s third-biggest economy takes steps to curb a record current-account deficit and defend the currency, Finance Minister Palaniappan Chidambaram said.
Inbound shipments of bullion fell in June and July from a year earlier and the government is determined to limit imports below the amount bought in the year ended March, Chidambaram told reporters in New Delhi today. Imports between July 1 and July 25 were 45 tons, he said, without elaborating.
India, the world’s largest bullion user, has doubled a tax on imports this year and tightened rules on overseas purchases to tackle a surge in demand after bullion entered a bear market in April. The rupee slumped to a record this month on concern that the current-account deficit will widen from a record in the year ended March. The deficit is the biggest risk to the $1.9 trillion economy, according to the central bank.
“We expect to save considerable amount of foreign exchange” on account of reduced gold imports, which were about $50 billion in 2012-2013, Chidambaram said. “Some more steps are on the anvil to fund the current-account gap” and the government may curtail imports of non-essential items, he said.
Gold consumption in India, which ships in almost all the bullion it uses, accounted for 20 percent of global demand in 2012, according to data from the World Gold Council.
The Reserve Bank of India on July 22 made it mandatory for importers to set aside 20 percent for re-exports as jewelry. The measures to moderate demand boosted the premium that jewelers pay to importers to about $10 an ounce over the London spot price from as low as $4 a week earlier, according to the the All India Gems & Jewellery Trade Federation.
Spot gold gained 0.3 percent to $1,330.73 an ounce at 4:48 p.m. in Mumbai, paring losses to 21 percent this year. Gold for delivery in August fell 0.4 percent to 28,580 ($472) rupees per 10 grams on the Multi Commodity Exchange of India Ltd.
India plans to ease overseas borrowing norms for companies in consultation with the central bank and is looking at steps to increase investments from Indians overseas to finance the current-account shortfall, Chidambaram said.
The current-account deficit, the broadest measure of trade tracking goods, services and investment income, widened to $87.8 billion in the year ended March 31 from $78.2 billion in 2011-2012, according to official data. The rupee touched a record low of 61.2125 per dollar on July 8.