It is not a surprise that China has outgrown India in its gold consumption in 2013, as they consumed 1,066 tonnes of gold, while Indian consumption was only 975 tones. Blame it on the curbs from Indian government just to keep the Current Account Deficit on track which led to the decrease in gold consumption by 10 % which was a 13% up from the consumption in 2012.
The CAD (Current Account Deficit) was on record high at $88.2 billion which is 4.8% of the GDP in the last fiscal term. Various curbs like a hike in import duty on gold to 10% and making 20% of the imported gold available to exporters, gold business in India is facing seasonal obstacles in making profit.
The central bank is strictly following the 20/80 principle on import which can be described as, when a nominated bank import 100 kg pure gold, 20% of that consignment should be given to the exporters and 80% will be in the domestic market. In order to bring down the consumption, nominated banks and import agents were restricted to distribute gold only to entities engaged in jewelry business and to those bullion sellers who are supplying gold to jewelers.
These steps has obviously resulted in decreasing the CAD, and the finance minister is hopeful about the exports that it will reach $326 billion in 2013-2014, which was $304.5 billion in 2012-2013. The restrictions were imposed in July 2013 since then the CAD has narrowed to$29.6 billion ie, 3.1% of GDP.
The curbs are enticing gold smugglers all around India and the records say that smuggling is about 20 to 30 tonnes a month, precisely speaking in the month of May alone around 162 tonnes was smuggled. Smugglers are frequently changing their techniques including people swallowing gold capsules and this month one person was caught swallowing 54 lakh worth gold in the capsule form! Those who were left unnoticed are more.
The high smuggling rate may not have convinced the RBI and finance ministry to ease the restrictions; they are actively looking at improved CAD. The ease in restriction is a necessity and this may take place by elections on May. The easing of 20/80 strategy can bring more gold in the domestic market
China, currently the top buyer of gold is working on the strategies which in turn create more suppliers. Recently Chinese government approved a gold trade fund and even import license for foreign banks. While India makes buying gold difficult China makes it easy. While Indian gold consumption raised by 13% Chinese consumption was on a high of 32% in 2013! China is even moving to keep gold price in their local currency(Renminbi) in international market, where as India does not even have a clear gold policy. Even Indian Finance Minister in his interim budget has strongly advocated curbs saying they are mandatory of a healthy economy.
I do not understand why should chinese govt should facilitate gold import. whats the logic behind it?
ReplyDeleteHi, The general assumption that Indians are more inclined towards gold. Surely China wants to become the biggest gold consumers. In 2013 the gold price fell 30% between January and June which was the largest decline since 1983. Another reason isliquidation of 585 tonnes of Gold ETF holdings which enticed the consumers one more reason, Chinese women prefer to give gold as a gift for the festival season. Most of the consumers were ladies who control the household. Gold fabrication has grown more than the past years. Chinese government are easing the restrictions on gold import.
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