India’s hunger for gold blows out May trade deficit

NEW DELHI: India's trade deficit widened to a seven-month high in May as gold imports surged, provisional data showed, but economists expect newly announced measures to dampen demand for the precious metal in coming months and narrow the shortfall.

Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2013/6/18/business/13252653&sec=business
Published: Jun 19, 2013

A nearly 90% annual jump in gold and silver imports saw the trade deficit rise to US$20.14bil last month from US$17.8bil in April. The rise in gold import growth was slower than an annual 138% surge in April.

A combination of sliding global prices and regional festivals in India that traditionally increase demand for gold as gifts prompted frenzied buying in April and May. A similar pattern was seen in the world's other major bullion buyer, China.

This robust retail demand has become a major headache for Indian policymakers who have announced a slew of measures to try to narrow the current account deficit, which hit an all-time high of 6.7% of gross domestic product (GDP) in the December quarter.

India, the world's biggest buyer of the metal, hiked the import duty on gold to 8% earlier in the month from 6%. The central bank has also sought to curb gold imports by banks and non-banks.

“We expect gold demand and, hence, imports to be significantly lower in June, and possibly remain low in coming months,” Barclays Capital said in a note after yesterday's data.

“The widening in May might mark a near-term high for the trade deficit, and we think it could narrow significantly in June,” it said.

India has been struggling to control its current account deficit, which has exacerbated the fall of the rupee against the dollar in the recent global selloff in emerging currencies.

The sharp depreciation in the rupee has also not helped Indian exports of value-added goods such as jewellery and pharmaceutical drugs.

Merchandise exports fell 1.1% from a year earlier to US$24.51bil, the first annual fall in five months, yesterday's trade ministry data showed. The sector makes up about 15% of the India's economy, which grew at its weakest pace in a decade in the fiscal year that ended in March.

Annual imports, meanwhile, rose about 7% in May to US$44.65bil, the trade ministry said. - Reuters