India’s gold imports in March 20201 surged 471 per cent from a year earlier to a record 160 tonnes, a government source told Reuters, as reduction in import taxes and a correction in prices from record highs drew retail buyers and jewellers. Higher imports by the world’s second-biggest bullion consumer could support benchmark gold prices, which have corrected nearly 17 per cent from an all-time high of $2,072 in August 2020.
Meanwhile Indian firms that lend against gold are seeking more collateral to protect against the plunge in prices of the precious metal.
Firms lending against gold have been offering discounts on interest rates and other incentives to borrowers who chose to repay monthly or more frequently. From a tenure of 270 days, firms are now even lending for 90 days. Market gossip hints at large firms disbursing amounts well below regulatory limits, which was 75 per cent of the metal’s value for shadow lenders and 90 per cent for traditional banks through March 31.
Gold loans had boomed over the past year as small businesses tried to revive themselves from lockdowns by pledging family jewelry that’s a staple of almost all Indian households.
India imported a record 321 tonnes in the March quarter, up from 124 tonnes a year ago. In value terms, March imports surged to $8.4 billion from $1.23 billion a year ago. This sudden surge in imports to meet increasing consumer demand could increase India’s trade deficit and pressure the rupee.
In February this year, during the Union budget, India slashed import duties on gold to 10.75% tax from 12.5% to boost retail demand and curtail smuggling into the country.
Gold posted its first quarterly drop in more than two years amid improving expectations for the global economy and fading demand from exchange-traded funds. The metal has fallen more than 9 per cent in 2021 as investors trade their havens for assets that will benefit from the economic recovery. Gold prices in India trade near one-year lows.