Estimating Indian Gold imports is a Herculean task

February 22, 2009

By Manasee S. Gokhale
One could question the ambiguity in the India Gold import figures year after year and find reason that dates back to history when imports were restricted and the only way Gold could be bought to the country was through smuggling.

Under India's Gold Act of 1962, citizens could not hold Gold in form of bars and coins and old holdings were to be converted into jewellery. Gold was smuggled in and sold through unofficial channels. Goldsmiths were unorganized labour force then and could not cope with these sudden developments.

Today also, not much has changed and traditional Goldsmiths are still largely unorganized. India embarked upon the path of economic liberalization in 1990 and although licensing was gradually dissolved and the 1962 Gold Control Act abolished in 1992, Gold retail market remained unorganized.

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Gold import was liberalized when the Government realised it would be profitable to earn taxes rather than allow smugglers to benefit from these stringent rules and lose it to unofficial channels. Of course, imports have increased year after year, but the
market is still unaccounted for and unorganized.

There are about 20 banks who can officially import Gold in 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 those who fulfill certain criteria that would enable them to obtain the Special license to import Gold.

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 channel is so long that it is difficult to find the exact amount of Gold that enters the country. This has given rise to ambiguity and large disparity in Gold import figures recorded by different research or trading organisations in India.

Will the one with the ‘real Gold import figures’ please stand up...

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’.

The World Gold Council figures
Consumer demand for Gold in India (tonnes)

2007                         2008
Q1 202.2                 102.1
Q2 296.1                 161.4
Q3 190.8                 249.5
Q4 80.1                   250.0

The World Gold Council has been optimistic on Indian Gold imports and their estimates have been rising in time. According to them, despite a deteriorating global and domestic economic scenario, demand for Gold in India has done fairly well in the third quarter.

The financial crisis and subsequently the economic downturn began by around this time, and Gold demand has sustained this downtrend.

Around the third quarter, prices were low, the monsoon had just been good, farmers were speculated to get a good crop and the festive season had just begun. At 249.5 tonnes, total consumer demand was 31 percent higher than the third quarter prices in 2007 according to WGC. Good rainfall and the expectation of a good crop, created a ‘feel good’ factor that boosted rural spending on Gold during the start of the festive season. Savings made by farmers to use in case of a bad monsoon were used to buy some Gold, increasing purchases of Gold jewellery.

The Bombay Bullion Association figures
According to a Mumbai-based trade body, The Bombay Bullion Association Ltd., India imports an estimated 500 tonnes of Gold a year. A stark difference when compared to the World Gold Council import figures for Gold which for some years now is averaging at 700 tonnes per year.

The 2008 import figures according to The Bombay Bullion Association (BBA) are also on the lower side, 402 tonnes for the entire year. The Association said that Gold imports by the world’s largest buyer had fallen 47 percent in 2008 and said it was the slowing economy that dented demand.

December 2008 bullion exports slumped 81 percent to 3 tonnes, from 16 tonnes in the same month a year before. According to Bombay Bullion Association, Indian Gold import figures for 2007 stand at 759 tonnes.

Manasee S. Gokhale is an Economist with the National Commodities & Derivatives Exchange (NCDEX), India

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