InvestorQ : What are the risks of India importing record gold in the last year 2021?
prachi Patwardhan made post

What are the risks of India importing record gold in the last year 2021?

sara Kunju answered.
1 year ago

India got to see record gold imports in calendar 2021 and that may not exactly be a very good signal. Here is what you need to know about burgeoning gold imports into India.

· For the year 2021, merchandise trade deficit crossed $150 bn. While the biggest item of imports was still oil, the second biggest was gold in the trade account.

· Ironically, gold imports are higher than most industrial inputs like diamonds, electronic goods and other chemicals and capital goods used for further production.

· Full year 2021 gold imports at $55.7 billion was 2.5 times the gold imports of 2020 and higher than the previous record of $53.9 billion gold imports recorded in 2011.

· Gold imports accounted for one-third of the merchandise trade deficit and nearly 8-9% of the total imports, which is a fairly large share.

· One big trigger was demand from jewellers ahead of the festival season. There was also a lot of inventory demand for gold as a safety measure due to Omicron.

· Rising gold imports are a worry because gold is an unproductive allocation and it does not result in higher domestic output or exports. It is consumed and locked up.

· As a result, the RBI is conscious of using precious forex reserves to fund gold imports. Government has tried curbs in the past, but it has not worked.