D K Srivastava, chief economic advisor, EY India, sees this trend as investors' losing confidence in financial instruments and parking their money in gold "due to the doubt about the prospect of growth and returns".
Fall in exports for the 13th consecutive month, lower imports and widening trade gap in December were all on expected lines but what's baffling economists and experts is the gold imports scaling up 179% in the month.
As per the commerce ministry statistics, published on Monday, gold imports doubled to $3.8 billion in December. For the April-December period in the current fiscal, they were higher at $26.45 billion compared with $25.85 billion during the same period last year.
D K Srivastava, chief economic advisor, EY India, sees this trend as investors' losing confidence in financial instruments and parking their money in gold "due to the doubt about the prospect of growth and returns".
"The trend of increase in gold imports indicates that people are willing to hold their savings in forms of investments which are not going towards financial instruments rather they are holding it in precious metals. This is due to their doubt about the prospect of growth, in general, and returns on financial instruments, in particular," he said.
The trade numbers published by the commerce ministry on Monday showed exports and imports slipping 14.75% and 3.9% to $22.30 billion and $33.96 billion, respectively, increasing current account deficit (CAD) by 27.1% to $11.7 billion in December this year from $9.18 billion in the same month last year.
The EY economist said the December trade figures confirmed that India was not immune to global slowdown and that excess production was making financial instruments unappetising, for now, driving people towards precious metals.
"They (trade numbers) confirm two trends: one is that the global economy is slowing down and Indian economy is not immune to that, and eventually because of the impact both on exports and on value of rupee, there would be an adverse impact on the Indian economy," warned Srivastava.
According to him, the second pattern emerging was that the domestic production capacity continued to be in excess, which was pinning down returns on investments in "financial form or any other real investments, pushing people to hold their savings in the form of precious metals, which was idle at this point".
Richa Gupta, senior director, Deloitte India, also pointed that massive jump in gold imports "warranted closer look if it persisted".
"While both these numbers (of exports and imports) were expected, gold imports showed a jump of 179% in December after contracting for the three preceding months. This jump was unexpected and warrants a closer look if the trend persists," she said in a statement issued by the Deloitte.
However, he said that "non-oil ex-gold imports had picked up pace sequentially giving credence to the fact that urban demand was on the upswing".
"Overall, we do not see the trade situation improving much in the coming months as global demand is expected to remain weak. Export revival would also be difficult as other emerging markets try and export their way out of the latest slowdown," said Gupta.
Srivastava also said that as long as the oil prices remained soft, the bloating CAD would not reach an "alarming" level.
"As long as the oil prices are low, even though the CAD might increase in terms of magnitude, it will not reach any alarming proportion," he said.
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