Gold Imports by India Slump in First Half on Curbs

Gold shipments into India, the biggest user after China, probably plunged 77 percent in the first half as government restrictions to contain a record current-account deficit increased costs and deterred buyers.

Purchases tumbled to 150 metric tons in the six months through June from 650 tons a year earlier, said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation. Imports in the second half will depend on government policies, he said.

India raised the import tax on bullion three times to 10 percent in 2013 and linked purchases to re-exports to narrow the deficit and a decline in the rupee to an all-time low. Prime Minister Narendra Modi’s government, which took office last month, may reduce the tax in the federal budget scheduled on July 10, Bamalwa said. Official imports may increase in the second half as the government may ease the curbs, according to Macquarie Group Ltd.

“Tax reduction will not smoothen the process of getting gold into the country because traders are not in a position to import gold on their free will,” Bamalwa said by phone from Kolkata, formerly known as Calcutta. “There won’t be much demand in July as there are no weddings and festivals.”

The government required shippers in July last year to supply 20 percent of imported gold to jewelers for export and sell 80 percent on the local market, known as the 80:20 rule. The step resulted in a drop in demand, helping China surpass the South Asian country as the world’s top buyer in 2013.

Rupee Rebound

The curbs helped narrow the current-account deficit to $32.4 billion in the financial year ended March 31, from a record $87.8 billion a year earlier, the Reserve Bank of India said May 26. The rupee has rebounded about 13 percent since touching an all-time low of 68.845 against the dollar in August.

While the government will make some changes to the import policy as it’s unpopular with a majority of the electorate, it remains debatable how far it will move, Macquarie analysts led by Matthew Turner wrote in a report on June 26. Modi’s government may not want to see imports return to their pre-intervention levels, they said. Bullion is bought during festivals and marriages as part of the bridal trousseau or given as a gift in the form of jewelry.

‘Ready to Buy’

“Till the time the restrictions are in place, it is very difficult that we are going to import in huge quantities,” Madhavi Mehta, an analyst at Kotak Commodity Services, said by phone from Mumbai. “We are still seeing pent up demand and people are ready to buy. It all boils down to what the government will do to ease import norms.”

Futures on the Multi Commodity Exchange of India Ltd. in Mumbai have dropped 2.9 percent this year to 27,595 rupees per 10 grams ($1,425.87 an ounce) as the rupee rebounded, while gold for immediate delivery in London climbed 9.2 percent to $1,311.99 an ounce.

The fees that Indian jewelers pay importers and dealers to buy gold were at $25 an ounce over the London cash price, down from $50 a month earlier, said Bamalwa. “These rates could fall further if government removes the restrictions.”

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