Gold imports decline 43% in January 2017: Note-ban impact

The Dollar Business Bureau 

India is one of the world's largest importer of gold, but the month of January, 2017 saw a 43% year on year decline in gold imports. India has seem its gold imports tank in the months following demonetisation, due to subdued demand resulting from cash crunch. From November highs of 119.2 tonnes, gold imports in December slumped to 54.1 tonnes. The import figure of 53.2 tonnes in January suggests that the tremors of note-ban haven't subsided yet. 

Automotive and jewellery industries are the worst-hit victims of the demonetisation move. Moreover, the wedding season co-inciding with demonetisation has worsened the scenario for gold retail. The sudden surge of demand for gold on November 8, 2016, when people rushed to exchange the old currency for gold, lead to higher imports during the month, which was followed by muted demand in subsequent months of December and January. 

Although demonetisation has become the scapegoat for a slowdown in any economic segment, it should be noted that gold imports have been sluggish throughout the current fiscal. In comparison to April-January gold imports of 892.9 tonnes in 2015-16, the same period in 2016-17 saw imports of the precious metal drop to 546 tonnes. This figure represents a 38.8% year on year decline. Total gold imported during 2015-16 stood at 968 tonnes, an amount that is likely to decline by more than a quarter in the current fiscal. 

Some other contributing factors to this plunge could be the government's incessant discouragement of gold imports in order to reduce India's import bill. India's trade deficit is saddled with crude and gold predominantly. Since crude oil imports are indispensable in oiling the nation's growth engines, the administration has been repetitively pressured to crack down on gold imports. Via import duty hikes and aggressive promotion of ETF schemes, the government has strived to bring down gold imports in the past few years. 

A stronger dollar is also seen as an influencing factor in the equation. This, coupled with the anticipation of interest rate hikes by the US Fed has made the dollar an attractive asset to hold for investors, resulting in departure of money hitherto parked in gold assets. 

Although the figures sing a good song, the gold smuggling business, which flourishes as a result of duty hikes, goes unaccounted. Only a stringent check on smuggling activities would translate the declining import figures into an actual fall of demand.