Recording over three-fold rise, India’s gold imports increased to US $4.95 billion in May. According to the Reserve Bank of India (RBI), the precious metal’s imports saw a surge initially on account of seasonal and festival demand but subsequently due to stockpiling in anticipation of the goods and services tax (GST) rollout.
Gold imports stood at US $1.47 billion in May last year, as per official data released. Overseas purchases advanced to 126 tonnes in May from 31.5 tonnes a year earlier. Silver imports too jumped to US $442.9 million in May from US $39.54 million in the same month last year.
Surge in the imports last month contributed to the widening of trade deficit to a 30-month high of US $13.84 billion as against US $6.27 billion in May 2016.
High imports of the precious metal could also impact the current account deficit (CAD) numbers. The current account deficit soared to US $3.4 billion, or 0.6 percent of gross domestic product (GDP), in the fourth quarter of fiscal 2017, from US $0.3 billion a year ago.
India is the world’s second biggest gold consumer after China. The imports mainly take care of demand by the jewellery industry. At present, gold import attracts 10 percent duty. The gems and jewellery industry along with the commerce ministry has time and again urged the finance ministry to consider a cut in the import duty.
The government fixed the GST rate for gold at 3%. The rate is lower than expected, and it is expected that this duty will replace more than a dozen domestic levies including excise tax and state tariffs, making India a common market for the first time.
Demand for gold is projected to rise to between 850 tonnes to 950 tonnes by 2020 from an estimated 650 tonnes to 750 tonnes in 2017 buoyed by the new tax regime, the World Gold Council said in a report.
In the financial year ended March 31, the country’s imports dropped 20% to 716.4 tonnes, according to the finance ministry. Indians buy gold during festivals and for marriages as part of the bridal trousseau or as gifts. The nation imports almost all the gold it consumes.