India's gold imports have climbed to alarming levels, posing a potential threat to the country's trade balance and economic stability, according to the think tank Global Trade Research Initiative.
In November, gold imports hit a record high of $14.8 billion, marking a four-fold increase, largely driven by demand from festivals and weddings, showed commerce ministry data on Monday. The imports were $3.44 billion in November 2023.
The GTRI pointed out that the surge in imports is due to several factors, including rising investment demand, reduced tariffs, and loopholes in trade agreements.
This dramatic increase in gold imports is raising significant economic concerns, as it is distorting the trade balance, weakening the rupee, and contributing to a widening current account deficit. The think tank urged the government to take urgent action to address the issue.
The "surging gold imports threaten India's trade balance and economic stability, and urgent action is needed" to address this, GTRI founder Ajay Srivastava said.
Gold imports in November accounted for 21.2% of India's total merchandise imports of $70 billion. For the first time, gold surpassed crude petroleum as the country's largest single import item.
"This sharp increase pushed India's monthly trade deficit to its highest level, exerting pressure on the rupee, which has depreciated against the US dollar. A weaker rupee raises import costs further, worsening the current account deficit," Srivastava said.
He said that most gold enters India as bars and rods with 99.99% purity, but traders are also using other tariff-free or concessional categories to bypass import duties.
He added that the country's experience with a free trade agreement with the UAE highlights the risks of offering tariff concessions on precious metals like gold, silver, and platinum in FTAs.
"These high-value, low-volume imports disproportionately impact India’s trade deficit and forex reserves, undermining macroeconomic stability. Excluding precious metals from FTAs is crucial to curb speculative imports, safeguard foreign exchange reserves, and protect India’s trade balance and economic resilience," Srivastava said.
(With PTI inputs)
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