As the gold prices slipped over last few months, imports of the yellow metal into the country has seen an ascent with India reporting imports worth Rs 22,835.69 crore constituting 6.26% of total imports in September 2014. Of this, imports from Switzerland was the highest at Rs14,560.84 crore.
The unusual increase in imports has given rise to the speculation that black money stashed abroad is finding its way back to the country through legal channels. However, jewellers claim that most of the gold imported is meant for re-export and goes out of the country as finished product.
On any given month, over 60% of the imports is from Switzerland.
Is there any link to the black money? A senior banker told dna, "We cannot draw direct correlation between the black money in Swiss banks and the large quantity of gold coming back to the country. But it can be camouflaged with the festival demand. We need to check export data two months down the line to see if there has been a corresponding rise in exports."
Some jewellers insist that the large imports were to meet the demand for gold during Dhanteras and Diwali with the fall in gold prices
Prithviraj Kothari, director, RiddiSiddhi Bullions and executive director of Indian Bullion Association, said this is not the case as the imports are directly linked with export and a strong domestic demand. He said, "Most of the gold comes from Switzerland as the big refiners are based in Switzerland and the country has huge reserves of gold. To curb the huge imports of gold, RBI last year imposed a 10% import duty on gold. They also put in place a 80.20 scheme in India whereby it was mandatory that 20% of the gold that is imported into the country needs to be exported."
Despite all the curbs, gold imports reported a massive $3.75 billion, an increase of around 450% year-over-year in September. In August, gold imports stood at $2.03 billion.
The increase is mainly due to the recent slide in gold prices. It is also due to the start of the festive season in India. The festive season starts in September. Last year, September imports were severely impacted by the import restrictions. The restrictions were imposed by government to control the current account deficit (or CAD).
"Earlier physical gold was imported and traded on the exchanges. Now that is down. But most of the gold that is coming into the country is to meet the domestic demand which is high and for export orders."
India being one of the largest importers of gold in the world, already has an estimated stock of more than 25,000 tonnes of gold in the custody of private households and temple trusts. It is estimated that out of the 25,000 tonnes of gold stocks in the country, only 200-300 tonnes get recycled annually leading to a very high dependency on imports. Traditionally, gold has always been a preferred asset class and an essential part of every Indian household mainly because of cultural reasons ignoring the fact that the high imports are exerting avoidable financial strain on the current account deficit (CAD). In order to control the CAD, the government had raised the customs duty on gold from 4% to 10% in 2013.
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