In 2014, precious metals market forecasts predict that import of gold to India this year will be similar to the last cycle, between 900 and 1,000 metric tons. According to the World Gold Council, the Southeast Asian country’s number two position in gold is expected to continue into the near future.
Rising taxes and restrictions on gold imports in India is a signal that the government is taking every measure to stop the influx of precious metals as part of a plan to control the country’s chronic deficit. Although the distance between current account gaps and trade has decreased over the past year, gold imports remain a point of contention, as transparency in reporting is exceedingly difficult to regulate.
India is moving toward a chrysalis in financial management of its debt problems, reducing current account deficit from $88 billion to $45 billion in the past year.
This shows an incredible level of talent in policy reform. More attention to investor education may result from increased confidence in a government that mirrors the U.S. Fed in its approach to managing uncertainty. Promoting a market focused economy, however, will be a significant task in a country of investors with a history of high dependency on safe haven assets, especially gold bullion and coins to ensure protection from risk.
The demand for gold is so high at the moment say economists, that record levels of precious metals are making their way into India’s economy without tax and tariff reporting. The total appetite accorded India’s gold trade: about 200 tons in 2013. Reporting by customs officials indicates that only about 1% of illicit gold is seized. Sold on gold, India’s investors are banking on safe haven assets in a global scenario shifting focus to securities and secondary market equities. Political instability and other pressures on India’s economy have incited this prolonged demand for gold.
Gold imports now making their way into India’s black market economy, are creating a stronger demand in the jewelry sector. High quality precious metals sought by jewelers more difficult to attain, merchants are suffering from price increases. Unless India eases the recent restrictions imposed on gold, say jewelry industry analysts, an economy of scale in exports will see major losses. The threat of China’s competitive advantage in manufactured metals will be imminent as a result.
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