India's Gold Imports: Back to 2001...?

New research says gold imports to India, the No.1 market, could halve in 2009...

GOLD IMPORTS to India, the world's largest consumer and importer of the yellow metal, could drastically fall to around 200 tonnes during 2009 if the current trend continues, says a bullion research note released by Commodity Online India Limited (COIL).

"India managed to import only around 32 tonnes of gold during January, February, March and April this year," says the COIL report. "Dull jewelry buying and record high Gold Prices have even resulted in exports of scrap gold from India to destinations like Dubai."

COIL publishes Commodity Online, the integrated global commodities portal published in Mumbai.

Global economic meltdown, uncertainty in stocks and commodities markets and volatility in Gold Prices have had a major impact on India's gold imports so far in 2009. In January, gold import by India was a paltry 1.8 tonnes against 18 tonnes in January 2008. In February and March, gold imports to India fell to zero levels, the worst in the last decade or more.

In April, gold imports picked up momentum, largely thanks to the ongoing marriage season and gold buying religious festivals like Akshaya Thritiya. The Bombay Bullion Association said last week that in April, India imported around 30 tonnes of gold.

Based on India's gold import in the last four months, and looking at the probability of imports in the coming seven months, the bullion research analysis from Commodity Online says that India's 2009 imports will be the lowest in at least eight years.

"We expect gold imports by India to be sluggish in 2009. There will not be much momentum in gold sales and imports in the country thanks to the high gold prices, volatility in markets and global economic conditions," says Nitin Khanna, bullion research head at Commodity Online.

Khanna predicted that gold imports by India could stand around 200 tonnes this year if this trend continues. He said gold imports and sales will gain in the months of August, September and November thanks to festivals like Diwali and Onam. "However, current bullion trade scenario suggests that countries like China will import more gold than India," he said.

Here are the Commodity Online research findings:

• In the last eight years from 2000, gold imports by India every year have been between 400-800 tonnes. In 2008, India's gold imports dipped by 45% to touch 450 tonnes;
• India managed to import only around 32 tonnes of gold during January, February, March and April, 2009;
• Buying gold jewelry has fallen sharply in the last four months, leading to a slump in the yellow metal's imports;
• The Bombay Bullion Association says gold sales and demand have dropped to negligible levels because of high prices. The gold and jewelry sector is reeling under a crisis because of falling demand;
• Current Gold Prices in India are hovering around 14,000 Rupee for 10 grams. Bullion traders expect gold prices could zoom to Rs 15,000 per 10 grams in the coming months, leading to a further dip in gold imports;
• Gold Prices have moved up as investors found a safe-haven in the yellow metal amidst fears of deflation. One major reason why gold imports to India are plunging is because Indian banks have a lot of carry-over gold stocks from last year, resulting in lower imports.

Quoting bullion analyst and economist Manasee S. Gokhale of National Commodity and Derivatives Exchange (NCDEX), Commodity Online says that India's gold import figures could be ambiguous, because until the middle of the 1990s imports were restricted and the only way to Buy Gold was through smuggling.

Under India's Gold Act of 1962, citizens could not hold gold in the form of bars and coins, and old holdings had to be converted into jewelry. Gold was smuggled and sold through unofficial channels, and the goldsmiths industry represented an unorganized labor force that could not stay on top of data coming from such illegal trade.

Today traditional goldsmiths are still largely unorganized, but India embarked on the path of economic liberalization in 1990. Although licensing was gradually dissolved and the 1962 Gold Control Act abolished in 1992, the gold retail market remains fractured. Gold imports were liberalized when the Indian government realized it would be profitable to earn taxes from gold, rather than allowing smugglers to benefit from these stringent rules. So of course, official imports have increased year after year, but the market is still largely unaccounted for and unorganized.

There are about 20 banks who can officially import gold into India, and a few other nominated government agencies that do so for their clients and other dealers. Besides these, special import licenses are given to very few players today.

Since last year, premier trading houses have been created and they are allowed to import gold too. When approached and questioned about their quantity of gold imports most of these are tight-lipped and reluctant to give away real figures. The entire chain is so long that it is difficult to find the exact amount of gold that enters the country, giving rise to a large disparity in the gold import figures recorded by different research or trading organizations in India.

The Commodity Online study says estimating Indian gold imports has always been a Herculean task and many have debated, counter debated, argued and counter argued over the accuracy of the estimates. Several have tried but none can say that they have the exact figures as to how much gold is imported in India. Hence, gold imports in India have for years now, remained simply 'approximate calculations'.

Even so, if India's true gold imports fall to 200 tonnes in 2009, it will be less than half of the yellow metal the country imported in 2008.