Indian Gold Imports Moderate As Duty Margin Closes And Seasonal Highs Correct

Import of gold has moderated from seasonal highs and arbitrage gains, and is likely to continue moderating, if not maintain current levels, according to experts.

Based on the latest data till January 2024, gold imports stood at $1.9 billion in the last month, bringing the cumulative imports to $37.85 billion from April-January in FY24. On a yearly basis, the January figure marks a 174% jump from the lows of $0.69 billion in January 2023.

While this may mark a year-on-year high, sequentially, gold imports have been moderating since the monthly jump in October 2023, when the single month's gold imports stood at $7.23 billion.

A week ahead of the interim union budget, the government hiked the import duty to 15% on the jewellery segment of 'gold findings.'

The 'findings' category includes smaller parts, like hooks, clasps and clamps, which are necessary for putting together a finished piece of jewellery. The move, according to industry analysts, was to rationalise the import duty and plug the differential margin that prompted the spike.

The last quarter, there was a clear spike in import levels, noted Kunal Shah, head of commodities at Nirmal Bang Securities Pvt. "...Gold was being shipped in at a lower rate and turned for a sizable profits with margins of 3-3.5%. This led to sharp spurts in gold imports but now, after rationalisation, there will be steady imports."

Shah was referring to the difference in basic customs duty and AIDC taxes on gold findings that was raised from 11% to 15% on Jan. 22, 2024.

"Earlier because of the treaty with Dubai (India-UAE trade pact), we were importing doré (gold bars) at 11.5% duty, and because of that the imports in India had surged. In comparison with last quarter, data shows gold imports have now moved. The government has rationalised the duty...Going forward, Indian gold demand is likely to be steady and (we are) not expecting any sharp spurt or crash in gold imports," Shah explained.

Prices have been going up and to some extent there was a speculative demand for gold, "which was led by the perception that gold is trending up and that spurs both investment and consumption demand", said Madhavi Arora, lead researcher at Emkay Global Financial Services Ltd.

Investment demand is likely to have played a bigger part along with seasonality, she said. "Seasonally also, this has been the case where October tends to include the anticipatory purchases ahead of the wedding season."

In terms of the outlook ahead, steady (gold) import levels will continue for the rest of the year, according to Shah. "Demand is going to remain strong, the trend looks fairly strong as we are growing at 4-5% demand growth rate every year."

Arora concurred, saying the next 2-3 months will be a period of moderation and stability from the highs of October 2023. "One can factor in that a 15% average increase in volume on a normalised basis for the next three years is likely," she said.