India's gold imports see massive drop
(Kitco News) India's gold imports plummeted 76% in January from a year ago as demand dropped due to rising local prices and higher import duty, Reuters reported.
India imported only 11 tonnes of gold in January, Reuters quoted a government source as saying. This is down from 45 tonnes imported a year earlier. India's gold imports were at $697 million in dollar terms, down from $2.38 billion a year ago.
This has been a trend in India as the country imported only 20 tonnes of gold in December compared to 95 tonnes a year ago. The change could negatively impact global gold prices.
Higher gold prices also started to weigh on demand in January, with local gold futures rising to a record high of 57,270 rupees per 10 grams.
The ongoing wedding season was supposed to help boost local demand. But the higher import duty has pushed jewelers to wait before purchasing more gold in the hopes that the government decides to lower the import levy.
There was hope that India would cut the import duty in its annual budget presented on February 1. But that didn't happen. Instead, India raised its silver import duty to align better with gold.
According to the new budget, the basic customs duty on silver was raised to 10% from 7.5%, and Agriculture Infrastructure and Development Cess (AIDC) on imports to 5% from 2.5%.
Earlier, there were reports that due to a surge in gold smuggling, India was considering cutting its import duty on gold as illegal activity was hurting official profits.
India chose to increase its gold import duty to 12.5% from 7.5% on July 1. The idea was to ease pressure on the rupee and bring down the trade deficit. Consumers now pay an 18.45% tax for refined gold when all taxes are summed up.
In response to this, India saw a surge in illegal imports, with grey market operators looking to bypass the import duty fees by selling their gold at a discount for cash.
"As a result, gold has been trading at steep discounts compared to the landing cost in the Indian market. The higher duty has also resulted in a spurt in cash sales, where the gold is available at a discount to the official price," Metals Focus said in a report.
Seizures of smuggled gold hit three-year highs in 2022, with India's customs taking control of over 3,080 kilograms of gold brought in illegally last year. This is according to data revealed by the Ministry of Finance in December. And increased smuggling activity led to a decline in legal gold imports.