India’s gold imports fell by 4.23% during April-July 2024, totalling USD 12.64 billion compared to USD 13.2 billion in the same period last year.
The decline is linked to global economic challenges and weaker commodity demand. Gold, a significant component of India’s import basket, continues to play a crucial role in the country’s current account deficit (CAD) calculations.
Monthly Decline in Gold Imports
The downward trend in gold imports was consistent throughout the initial months of the fiscal year, with significant contractions seen in May, June, and July 2024. Specifically, imports fell by 9.76% in May, 38.66% in June, and 10.65% in July. July’s imports amounted to USD 3.13 billion, down from USD 3.5 billion in the same month last year.
Interestingly, April saw a surge in gold imports, which increased to USD 3.11 billion from the previous year’s USD 1 billion in April 2023. However, this spike was short-lived as the figures began to decline in the following months.
Customs Duty Cut and Its Potential Impact
The Indian government recently reduced the customs duty on gold and silver, cutting it from 15% to 6%. Jewellers anticipate that this measure, along with the festive season, will boost gold imports from September. The festive period typically sees higher consumer demand for gold.
One jeweller remarked that while high gold prices have discouraged imports in recent months, the lowered duty and the seasonal demand are expected to turn the tide and bring about a rise in imports later this year.
Global Gold Price Trends
Rising gold prices have contributed to the decline in imports. On August 14, gold prices in the national capital increased by Rs 300 to Rs 73,150 per 10 grams, reflecting global price trends. Higher prices tend to lower demand from jewellers due to higher production costs.
Trade Deficit and Current Account Impact
Despite reduced gold imports, India’s trade deficit expanded, reaching USD 23.5 billion in July and USD 85.58 billion for April-July. Gold imports, which account for over 5% of total imports, remain a key factor in the trade balance.
The current account deficit, a critical economic indicator for India, has been impacted by the drop in imports. However, the country recorded a current account surplus of USD 5.7 billion in the March quarter, partially due to reduced gold import volumes. For FY24, the CAD narrowed to USD 23.2 billion or 0.7% of GDP, compared to USD 67 billion or 2% of GDP in FY23.
Silver Imports Surge Amidst Gold Decline
While gold imports fell, silver imports rose sharply in the same period. Between April and July 2024, silver imports increased to USD 648.44 million, compared to USD 214.92 million in the previous year. The shift could indicate a move towards silver as a more affordable alternative.
Gems and Jewellery Exports Experience Downturn
In addition to lower gold imports, India’s gems and jewellery exports contracted by 7.45% during April-July 2024, totalling USD 9.1 billion. This contraction reflects global economic uncertainty, which has affected demand for luxury goods, including fine jewellery. The ongoing economic challenges, coupled with inflationary pressures and fluctuating commodity prices, have slowed the growth of India’s key export sectors.
Switzerland and UAE Remain Key Suppliers
India continues to rely on a few key countries for its gold imports. Switzerland remains the largest supplier, accounting for about 40% of India’s gold imports. The UAE follows with over 16%, and South Africa makes up about 10% of the total gold imports. These countries have long been central to India’s gold supply chain, catering to the substantial demand generated by the jewellery industry.
Concerns Over India-UAE Trade Agreement
India is currently seeking a review of its free trade agreement with the UAE, which came into force in May 2022. The Comprehensive Economic Partnership Agreement (CEPA) allows for duty-free imports of precious metals from the UAE. However, this provision has raised concerns, particularly regarding the long-term impact on India’s domestic market.
A report from the Global Trade Research Initiative (GTRI) highlighted potential issues with the trade agreement, stating that it could lead to significant revenue losses for India. The agreement allows for zero tariffs on gold, silver, platinum, and diamonds from the UAE over the coming years, which could shift the gold import business from banks to private traders and replace traditional suppliers with Dubai-based firms. GTRI also raised concerns over the possibility of non-compliance with Rules of Origin conditions, which could further complicate the import process under the trade agreement.
Implications for Jewellers
For jewellers, the reduction in gold imports and fluctuating prices present both challenges and opportunities. The rising cost of gold may impact production costs, leading to higher prices for finished jewellery products. However, the anticipated recovery in imports as the festive season approaches may offer relief, especially with the recent duty cuts making gold more accessible.
