Indians are again bagging massive amounts of gold, although the prices surged this time. As they are buying gold from Indian markets, gold import bills are rising significantly, widening the trade deficits. In April-November, this year, India's trade deficit expanded to $122 billion. In the first 8 months of the current fiscal, gold import bills have surged 170% than to the same period of the earlier fiscal. This eventually increased the trade deficit of the country.
Importantly, in the previous fiscal, this time, Indians were restricted to their houses for the severe impact of the pandemic. Lockdown and the downturn of the economy did not allow Indian much to spend on non-essential goods much. Hence, this fiscal's gold import bills have increased enormously on YoY basis, as a low-base impact.
However, in the same period of the FY 20, both gold import bills and trade deficits were higher. According to reports, the gold import bills stood at $33.32 billion which was 61.4% higher. Similarly, the trade deficit was around 7.5% higher.
The share of gold import bills in the total imports bills, for the period, has increased to its highest level, since 2015-16. According to a report by the Ministry of Commerce on the international trade shows, "Gold imports by value at about 8.6% of the total imports in April-November 2021, against 6.3-7.7% in recent years." 2020, on this matter, has been different, as the share of gold import bills dropped to 5.6% of the import bill, or $12.3 billion in the same period. At that time, gold demand fell suddenly due to the pandemic, while gold prices increased massively.
Available reports inform that in India 445 tonnes of gold were imported, during April - September 2021. among these, two-thirds or more than 292 tonnes were imported in the Q2, before the wedding and festive seasons. Around 120 tonnes of gold were imported in August. It is equivalent to the total import in the H1, FY21. Additionally, 96 tonnes of gold were again imported in September, this year. In the recent period, in October and November, India is estimated to import an additional 150-175 tonnes of gold.
As soon as the pandemic started to be under control and vaccination activities started to gain pace, Indian have shown a huge range of gold demand, both for personal consumptions and for investment purposes. Gold rates remained quite elevated in the international markets, and Indian markets, due to the rising inflation. Gold rates, in August 2020, stood at an all-time high rate of $2,057/oz, and now the rates are staying above $1780/oz, which is expected to rise in the upcoming months if inflation does not come under control.
However, a falling gold rate in India will further show an increased demand for gold jewelleries, and before the wedding season in the country, it will ease the common buyers' pockets. Now, people are also showing interest in digital gold and Gold ETFs.