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Gold brighter than PC, Rajan

Mumbai, Feb. 18: Indians have always succumbed to the seductive appeal of gold — and try as hard as it might, the UPA government is unable to dispel the allure that the yellow metal has on the common man.

The World Gold Council (WGC) put out data today that showed that the demand for gold in India had surged nearly 13 per cent to 974.8 tonnes in 2013 from 864 tonnes in the preceding year.

This is a clear indication that combined efforts of the finance ministry under P. Chidambaram and the Reserve Bank of India under Raghuram Rajan to quell India’s craze for gold aren’t working.

The RBI had first flagged gold imports as a source of concern when the current account deficit (CAD) — which is a measure of the flow of goods, services and money across national borders — leapt to $32.6 billion in the third quarter of 2012-13 (October-December).

The alarming surge prompted the government to raise the import duty on gold from 4 per cent to 6 per cent on January 21, 2013. By the end of March 2013, the CAD jumped to $88.2 billion — its highest-ever level — prompting global credit rating agencies to warn of a downgrade of India’s sovereign credit rating to the level of a junk bond.

Spooked by the threats and frustrated by its failure to dissuade jewellers and ordinary people from importing gold into India, the government quickly raised gold import duties twice last year — on June 6, to 8 per cent and on August 13, to 10 per cent.

The government had started patting itself on its back when data from the Calcutta-based Directorate General of Commercial Intelligence and Statistics (DGCIS) showed that the combined value of gold and silver imports into the country had fallen to $803.2 million in September from a high of $8.38 billion in May — a sharp 90.4 per cent fall in a space of four months.

In the interim budget presented yesterday, Chidambaram proudly said that CAD had been controlled and would hover at less than $45 billion by the end of this fiscal — representing a 49 per cent decline in one year.

In interviews to a news agency, Chidambaram also said the government would now review whether to cut the import duties on gold since CAD was now under control.

But the World Gold Council’s report says something that has always been suspected: the demand for gold has risen rather than diminished and smugglers are having a field day. It said 200 tonnes of gold entered India through the unofficial route in 2013.

“Market analysts have suggested it (gold arriving through the unofficial route) could have added between 20 to 30 tonnes per month, while the Indian finance minister is considerably more conservative, having been reported as saying it was between 1 to 3 tonnes per month in the second half of the year…. Our independent estimation, based on our own analysis of the market, is that these unofficial flows may be considerably higher. We have previously been on record with our estimate of between 150 to 200 tonnes for 2013, and we feel that the total for 2013 was closer to the top end of this range,” the WGC said in its Gold Demand Trends for the year 2013.

The WGC said imports of around 825 tonnes had met some of the domestic demand for gold; the rest was satiated through the supply of recycled gold and from other sources.

It is clear that when official supplies start drying up, the alternative sources of gold — recycling gold, domestic production and smuggling — have started to meet the pent-up demand for the yellow metal.

The WGC report said India had been knocked off its perch as the largest consumer of gold, confirming a report last week.

China has claimed the pre-eminent position with demand for gold in the country estimated at 1,065.8 tonnes against 974.8 tonnes in India in calendar 2013.

The WGC has estimated demand for gold in India at 900 to 1,000 tonnes in 2014 and that in China at 1,000 to 1,100 tonnes.

The report admitted that gold demand in the second half was lower due to the effect of the supply curbs introduced in that period. However, it was also due to the fact that households met a large part of their annual gold requirements in the first half, using the price drop in April as a buying opportunity.

The total jewellery demand in the country in 2013 was up by 11 per cent at 612.7 tonnes valued at Rs 1,61,750.6 crore compared with 552 tonnes valued at Rs 1,58,359.1 crore in 2012.

The total investment demand for 2013 was up by 16 per cent at 362.1 tonnes from 312.2 tonnes in 2012. In value terms, gold investment demand rose by 6 per cent to Rs 95,460.8 crore against Rs 90,184.6 crore in 2012.