Why has there been a surge in gold imports during the current fiscal year so far?

For the first 11 months of the fiscal year FY22 (i.e. Apr-Feb), the Indian economy reported gold imports 73% higher at $45.10 billion. This largely came on the back of higher consumption demand from the jewellery segment and also from higher investment demand and many long term allocators saw gold as a good risk-off option to hold value. This is normally the case, when geopolitical risk enhances the demand for holding gold.

If you compared with the like period last year, gold imports stood at $ $26.11 billion in FY21. In a sense, you can say that the cause of the trade deficit in the first 11 months widening to $176 billion in FY22, can be explained by a surge in demand for gold imports. In volume terms, gold imports in the Apr-Feb 2022 period were 842.28 tonnes, roughly around the average of last few years.

Generally, RBI tends to frown upon a surge in gold imports a it is an unproductive asset and users up the forex reserves of the exchequer to import an unproductive asset class. In the past, during the 2011 and 2012 period, the government had put limits on gold imports to curb the excess imports of gold at high prices. But it cannot be denied that the surge in gold prices in India, where households hoard close to $1.40 trillion worth of gold.