Being one of the highest importers of gold in the whole world, India is always expected to create massive gold demand. This has been a custom in Indian economy since its birth and the industry has levelled up to unparalleled growth. But, the country has been pushed to restrict its gold imports in the recent past. One would wonder what the reasons for such a non-typical move are. There are some key points that prevent the economy from buying new gold reserves.
A Year Long Hiatus
Indian economy witnessed a shocking scenario when its gold imports fell by a staggering 24% from its current demand. According to the latest reports the demand has fallen short to $23.22 billion from $30.71 billion in the period of April-February in the last fiscal. The pattern started a year ago when gold imports went down from their regular value and since then they have not been able to soar high. Some industry experts believe that the market has been hit with international as well as domestic turbulence.
Fall in Gold Prices
It is believed that the fall in gold prices in the world market has de-motivated Indians from investing in gold. Indian consumers view gold as jewellery as well as an investment. It’s a matter of fact that gold has seen a decline in its prices. Indian consumers have not been willing to buy more gold. Of course, if prices keep dropping, the value of gold as an investment goes down. Hence, the overall decrease in gold demand is witnessed.
This contraction in imports has helped in narrowing down the trade deficit in 2016-17 to $95.2 billion when compared to $114.3 billion in the previous year. Though the total outcome is not encouraging, there is a year-over-year improvement. Data from commerce ministry shows that the month of February was better in 2017 when compared with 2016.
Demonetisation has also been blamed to stop the flow of gold into Indian economy. It has left Indians with less money to invest in luxuries like gold that has eventually discouraged the jewellery business. On the other hand, the 10% import duty laid by the ministry of Finance on gold has prevented the top importers from buying gold in the current situation.
It is believed that the gold imports will see a further decline this year till the Indian economy gets stabilized and the gold prices increase in the international market. Before this point, there is no hope for revival of Indian gold imports.
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