India, the world’s largest bullion consumer, plans to review import policy after shipments surged in the past two months, threatening to widen a record current-account deficit.
The country can’t afford high levels of purchases and policies will be reassessed if needed, Finance Minister Palaniappan Chidambaram told reporters in New Delhi today. He didn’t specify what changes could be made. Imports may have been about 162 metric tons in May, the Finance Ministry said.
India tripled a tax on imports since January last year to 6% and placed curbs on purchases by banks after bullion in April slumped the most in three decades, sparking a buying frenzy for jewelry, coins and bars. The Reserve Bank of India may ban all importers from shipping the metal on a consignment basis, a Finance Ministry official told reporters in New Delhi today, asking not to be identified citing government rules.
“There is very little room for the government to have any measure by which they can reduce the demand,” said Madan Sabnavis, chief economist at Credit Analysis and Research Ltd. “Maybe they can increase the tariff on gold further and make gold more expensive. Demand for gold won’t ease unless prices go higher and pressure on the deficit will remain.”
The current-account deficit, the broadest measure of trade, widened to $32.6 billion in the last quarter of 2012 on gold and oil imports and subdued exports, according to the central bank. The Reserve Bank has said the imbalance is the biggest risk to the $1.9 trillion economy.
Gold and silver imports more than doubled to $7.5 billion in April, according to the Commerce Ministry. Chidambaram’s estimate of shipments for May seemed too high, Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation, said by phone from New Delhi.
“India cannot afford to import 262 tons of gold a month,” Chidambaram said. “Necessarily, we will have to check” the imports, he said.