The expectations are rising that finance minister Arun Jaitley may relax some of the curbs on gold imports in the budget, likely to be presented next month. This could cheer gold buyers as the yellow metal could fall further, continuing a recent declining trend on anticipation of easing of import curbs.
The budget session of Parliament is expected to start from the second week of July, Parliamentary Affairs Minister M Venkaiah Naidu said on Thursday.
Mr Jaitley could be encouraged to relax restrictions on gold imports as current account deficit has fallen sharply. The current account deficit, which touched a record high of $87.8 billion in the 2012/13 fiscal year, eased to $32.4 billion in 2013/14 after the previous UPA government cracked down on gold imports to curb the deficit. In addition, exports have picked up in recent months which could cushion anticipated rise in gold imports if are eased.
The Bharatiya Janata Party in the run-up to the elections had promised to ease restrictions on gold imports, saying these curbs had led to smuggling. Prime Minister Narendra Modi in the run-up the elections had said that any action on gold should take into account the interests of the public and traders, not just economics and policy.
India's exports have risen in recent months due to a pick-up in demand from Europe and the United States and a weaker rupee. Exports in May jumped 12.4 per cent from a year earlier to $28 billion, while imports were down 11.41 percent to $39 billion, helped by a 72 per cent drop in overseas gold purchases.
India is the world's second-biggest gold buyer and the government is under pressure from the industry to loosen restrictions. Former finance minister P. Chidambaram had raised the import tax on gold to 10 per cent from an initial 2 per cent and introduced administrative controls that helped bridge the current account gap.
After the May trade data was announced, trade secretary Rajeev Kher said the commerce ministry is in favour of "rationalising" the import duty and that there was a clear view that "normalcy" is needed to be restored to gold imports.
Commenting on May trade data, Upasna Bhardwaj, economist at ING Vysya Bank, said, "Seasonally, trade balance tends to worsen in the April-June quarter compared to the previous quarter. The pick-up in imports was not only led by oil, but also by non-oil, non-gold imports, signalling stability in domestic demand. Also, export growth is encouraging. Curbs on gold imports may be removed or eased during the budget."
Some economists say that even if Mr Jaitley eased some restrictions on gold imports, the current account deficit would remain at manageable levels on the back of an anticipated pick-up in exports. Anubhuti Sahay, an economist, Standard Chartered Bank, says, "With better economic activity especially in the U.S. and Europe, Indian exports are likely to stay on a reasonably better footing this time. Unless global growth disappoints, risks to trade deficit remains contained even if gold import restrictions are relaxed further."
According to Yes Bank chief economist Shubhada Rao, in 2014-15, India's exports are likely to grow by 7.3 per cent and imports by 8 per cent in 2014/15, with trade deficit pegged at $164 billion. This will not be a big increase from the FY14 trade deficit of $147.6 billion.
"Going forward, we expect some widening of trade deficit on the back of gold demand picking up on expectation of a reduction in import duties. However, the extent of trade gap is unlikely to be worrisome as we expect exports to maintain good performance," she says.
However, Mr Jaitley would be keeping a close eye on global oil prices which have spiked to 9-month high due to the Iraq crisis. Brent futures rose towards $114 a barrel on Friday, as supply disruption fears took centre stage with the United States threatening military action in Iraq as Sunni Islamist militants push on towards Baghdad.
Spot gold prices are hovering around Rs 27,000 per 10 gm and traders anticipate a big fall if import duties are reduced in the Budget. "There is a feeling in the market that import duty will be reduced from 10 per cent to 4 per cent in the upcoming budget. If that happens and rupee continues to remain strong, gold prices can come down to Rs 24,000-25,000 per 10 gm," says Sachin Kothari, director of BullionIndia. (With Agency Inputs)
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
