A Reuters report yesterday quoted India’s Trade Secretary Rajeev Kher as saying that the country’s Current Account Deficit (CAD) was now under control so there was no need to impose further import controls on gold.

India’s gold imports in October and November were running so high (152 tonnes in November and almost as much in October) that there had been speculation that the country would impose additional import controls over and above the 10% import duty on gold and silver currently prevailing.  However imports eased to only 39 tonnes in December and 7 tonnes in the first few days of January suggesting that the October and November figures were something of a blip ahead of the major 2014 Festival and Wedding seasons.  Imports had been running at relatively low levels earlier in the year and once the high latest figures fell away the Modi government obviously feels that matters are now in hand – and there have even been hints that gold import restrictions may be eased further should the CAD stay under control.  These hints may well have contributed to the lower import levels too as traders wait in hope that duties might be relaxed.

It should be recalled that the Reserve Bank of India, at the government’s behest, scrapped the 80:20 rule that stated that 20% of imported gold had to be re-exported in fabricated form only last month.  However the 10% import duty remains in place.  The import duties have led to significant smuggling of gold into the nation – some have estimated this at 300 tonnes or more in 2014 and while this doesn’t show up in import figures it still has an adverse effect on the economy – not least through avoiding the import tax.  It also damages the business of the more scrupulous traders, while benefiting those prepared to flout the law.

The precious metals sector is big business in India and employs huge numbers of people, most of whom will have voted for the new government which had appeared to be more friendly to the precious metals industry. However gold imports in the past had been such a major contributor to the CAD imbalance that this caused the import duties to be imposed by the previous government, and so far maintained by the new one which won the April election. The new Modi government is seen, however, to be much more business oriented and has pledged to bring down the CAD and if it succeeds in doing so there has been a wide expectation that it would ease the import duties, but it is probably unlikely to do so for some months yet.