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Will India’s Falling Gold Imports Provide the Midas Touch to India's Pandemic Hit Economy?

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New Delhi (Sputnik): Indian economy is feared to contract by around six percent in the current financial year (April 2020 – March 2021). The country’s Gross Domestic Product (GDP) growth fell from over 8 percent in early 2018 to 3.1 percent in January – March 2020.

India’s gold imports appear to have witnessed a steep decline in the past few months, as the Covid-19 pandemic seems to have hit demand for the yellow metal.

From $8.75 billion of imports in April-May 2019, inflow of the commodity plunged to $79.14 million in April-May this year, owing to the impact of the Covid-19 pandemic, Indian Commerce Ministry statistics have revealed.

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In April, Indian gold imports plummeted to only 50 kilograms compared with 110 tonnes in the same month of the previous year. In value terms, gold imports in this April dropped to $2.84 million compared with $3.97 billion in April 2019.

The trend continued in May when gold imports got completely wiped out, down to 1.3 tonnes compared with 106 tonnes in May last year. In value terms, according to the Commerce Ministry, India imported gold worth $76.3 million this April, compared with $4.78 billion in April 2019. With imports falling 86 percent, the story was no different in June. Gold imports were down to 11 tonnes this June compared with 77.3 tonnes in the same month in 2019.  

India imports almost 800-900 tonne of gold annually for the use in the domestic market and also for re-export in the form of jewellery. However, it accounts for a massive foreign exchange outgoing impacting the country’s current account deficit. That’s precisely the reason why experts believe that curtailment in gold imports could be a blessing in disguise for the Indian economy.

Experts feel that this will help bolster the country’s foreign exchange reserves that have now topped $500 billion and will also help the economy in terms of a healthy balance of payments.

Anuj Gupta, Deputy Vice President (Commodities Research) at brokerage firm Angel Broking told Sputnik, “Low gold imports will first of all control the current account deficit. Secondly, with gold imports coming down, alternative investment avenues will open up for investors. Physical gold is a dead asset as it locks liquidity and does not allow rotation of money. If people start opting for other investment avenues, like equity, equity traded funds money starts getting churned up and that’s how the economy starts benefitting.”   

Supporting the currency against the dollar is a very significant plus amid the current global economic situation said a currency expert.  Soumya Dutta, the CEO of eforexIndia.com, said high foreign exchange reserves give us a hedge against future uncertainties and will fetch returns too, as they will remain invested in US treasury bonds. 

The current account situation, a measure of the inflow and outflow of goods and services in the economy, improved for the first time in January – March this year. According to the country’s banking regulator, the Reserve Bank of India, the country registered a current account surplus to the tune of $0.6 billion in January – March this year against a deficit of $4.6 billion in the same period in 2019.

 

 

 

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