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

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.