High gold imports poop exports party biz
The yellow metal is back to haunt the economy with gold imports in June jumping 65.13 per cent to $ 3.12 billion from $1.88 billion in the same month last year, which in turn pushed the trade deficit to 11-month high of $ 11.76 billion last month.
Exports grew in double digits for the second month in a row in June at 10.22 per cent, but gold imports were the spoiler. The previous trade deficit high was $12.2 billion last July. It was $ 11.23 billion in May. Last June, it was $ 11.28 billion.
Union finance minister Arun Jaitley had surprised bullion markets by keeping the import duty on gold and silver unchanged at 10 per cent in the Budget.
The previous government had increased import duties on gold and imposed a rule that required a fifth of all bullion imports be re- exported in order to curb the rising current account deficit ( CAD). Consequently, gold imports reduced but these measures pushed up premiums in the domestic market sparking a rise in smuggling.
The June trade deficit swelled to its highest level since July 2013 after the Reserve Bank of India decided to ease tough gold import rules, which led to a 65 per cent annual rise in overseas purchases of the yellow metal.
The strong rebound in gold imports could mean the curbs stay in place for some time as the overall import bill is expected to rise on the back of an improvement in investment and consumption activity adding to the trade shortfall.
A jump in overseas purchases of gold along with a revival in demand for iron and steel helped imports post an annual growth of 8.33 per cent in June- their first rise in 13 months. Analysts reckon a recovery in imports will likely worsen CAD this fiscal.
Rao expects the deficit to hit 2.6 per cent of gross domestic product, sharply higher than 1.7 per cent last year.
Care Ratings said that going forward, growth in exports will be largely determined by the state of the economy of the trade partners, which would tend to improve thus providing support.