Introduction
India’s gold imports surged to a record $14.86 billion in November 2024, marking a four-fold increase compared to $3.44 billion in November 2023. This spike was largely driven by festive and wedding season demands, according to data released by the Commerce Ministry.
Key Highlights of the Surge
1. Cumulative Growth in Gold Imports
- Gold imports during April-November 2024 rose 49% to $49 billion, compared to $32.93 billion in the same period last year.
- The significant growth underscores strong investor confidence in gold as a safe-haven asset amidst economic uncertainties.
2. Gold as a High-Performing Asset
- Gold has delivered an average annual return of 25% in 2024 (till November), making it one of the top-performing investment options.
- The price of gold has surged 23% this year, reaching ₹78,350 per 10 g in India’s national capital.
3. Contributing Factors to the Increase
- Festival and Wedding Season Demand: A traditional surge in gold buying during Diwali and wedding ceremonies.
- Customs Duty Cut: The government reduced gold import duties from 15% to 6%, incentivizing higher imports.
- Global Uncertainty: Investors moved towards asset diversification, seeing gold as a hedge against global economic instability.
4. Impact on Trade and Current Account Deficit (CAD)
- The rise in gold imports contributed to a record trade deficit of $37.84 billion in November.
- Gold imports account for over 5% of India’s total imports, impacting the CAD, which widened to $9.7 billion (1.1% of GDP) in April-June 2024.
5. Key Gold Suppliers
- Switzerland: largest supplier, contributing 40% of imports.
- UAE: accounts for over 16% of imports.
- South Africa holds a share of about 10%.
6. Gems and Jewellery Industry Impact
- The surge in gold imports contrasts with a 25.32% year-on-year decline in gems and jewellery exports to $17.43 billion in November.
Concerns Around UAE-India Trade Agreement
The surge in imports has raised concerns about the India-UAE CEPA trade agreement. Experts warn of potential revenue losses due to tariff reductions:
- Gold from Dubai currently incurs 5% duty, but this will drop to zero in three years if the alloy contains 2% platinum.
- Think tank GTRI has flagged that many imports may not meet Rules of Origin conditions, challenging their eligibility for trade concessions.
Conclusion
The sharp increase in gold imports reflects strong domestic demand, driven by cultural, investment, and economic factors. However, it poses challenges for India’s trade balance and highlights concerns surrounding trade agreements. Policymakers will need to strike a balance between promoting gold availability and addressing fiscal impacts to safeguard India’s economic stability.
