By Ajay Srivastava
The record gold imports last month widened the trade deficit and pushed the rupee to an all-time low. While a calculation error may have led to overestimating the imports, there could be other factors at play also, explains Ajay Srivastava
Record imports in November
India’s gold imports reached an all-time high of $14.9 billion in November 2024, far exceeding the monthly average of $3.8 billion for FY 2024, when total gold imports were $45.5 billion. In November, gold accounted for 21.2% of India’s total merchandise imports of $70 billion, surpassing crude petroleum as the largest single import item for the first time.
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Gold imports in November 2024 surged by 331.4% compared to the same month in 2023. Excluding gold, India’s merchandise imports would have grown by only 6.7%, against the reported 27.04%. This spike significantly widened the trade deficit, putting downward pressure on the rupee, which has depreciated against the US dollar. A weaker rupee further raises import costs, worsening the current account deficit.
Tariff cut adds to the appeal
The cut in import tariffs from 15% to 6% in the last Budget made domestic gold prices more competitive with global rates, encouraging legal imports and boosting its appeal as a long-term investment. Imports have also risen as investors seek safer options amid overheated stock markets. During Diwali, demand for gold coins, especially in 20, 50, and 100-gram sizes, exceeded supply, with premium pricing. This trend continues with gold bars and jewellery as the wedding season begins. Speculation about a potential increase in import levies from 6% to 10% in the coming Budget is further driving imports. Traders anticipate quick gains if tariffs rise, while rising global prices reduce the risk of losses even if tariffs stay the same.
Impact of the India-UAE trade deal
The India-UAE Comprehensive Economic Partnership Agreement (CEPA), effective from May 1, 2022, has boosted imports of gold, silver, and platinum by offering low-duty access. Dubai does not mine gold; instead, gold from other countries is minimally processed locally to meet CEPA norms and then routed to India. To manage this surge, India reduced the Most Favoured Nation duties on gold and silver from 15% to 6% in the 2024 Budget.
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