Indian Gold Restrictions Drove Imports Down 77% in 2014

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.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza