InvestorQ : Will India really benefit economically from the fall in gold imports?
Rashi Mehra made post

Will India really benefit economically from the fall in gold imports?

Niti Shenoi answered.
2 years ago

Most economies dread to see high gold imports in their trade account. However, now India’s current account position may have more to cheer about as gold imports plunged by 57% to $6.8 billion in the first half of fiscal year 2020-21.

The slump in gold demand has been triggered by a slump in domestic demand as well as the COVID-19 pandemic. Either ways, the macro news is good because India has to pay less dollars for importing an unproductive asset like gold into the country.

In the first half in previous fiscal, the corresponding figure was $15.8 billion and that is now down to $6.8 billion, which is a steep fall. Even silver imports have fallen sharply by 63.4% to $734 million.

This fall in gold imports is relevant for India because she is the world’s largest importer of gold at 800-900 tonnes on an annual basis. That puts huge pressure on the forex reserves as there is no productive benefit coming from gold imports, unlike machinery imports.

This has also had a downside. For example, this fall in gold imports has resulted in gems and jewellery exports falling by 55% in H1-FY21 to just about $8.7 billion. India has always been one of the largest exporters of gems and jewellery and gold is an important component.