Oct. 9 (Bloomberg) -- Gold imports by India tumbled last month after the world’s biggest user restricted shipments and increased taxes to contain a record current-account deficit and halt a plunge in the currency.
Purchases of gold and silver were worth $800 million compared with $4.6 billion a year earlier, the Commerce Ministry said today. Imports have declined since the government linked shipments to re-exports in July and the trend may continue, the Finance Ministry said on Oct. 1.
The slide in shipments will comfort Prime Minister Manmohan Singh, who increased taxes on bullion three times this year to cool demand after buying helped to widen the current-account deficit and pushed down the rupee. The government plans to keep imports to 800 tons in the financial year ending March 31 from 845 tons a year earlier, Economic Affairs Secretary Arvind Mayaram said on Oct. 1.
“Imports have been very negligible since the 80:20 scheme came into place and they will remain low in October as well,” Prithviraj Kothari, a director at the Bombay Bullion Association, said by phone from Mumbai. “There are supply issues in the local market as only a couple of consignments have been cleared by the customs so far.”
The Reserve Bank of India on July 22 made it mandatory for importers to set aside 20 percent for re-export as jewelry, almost halting imports by traders and banks. Shipments will be cut to 150 tons at most in the second half from 478 tons a year earlier because of higher tariffs and restrictions, according to Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation.
Spot gold traded in London plunged 26 percent in the past year to $1,311.49 an ounce. Futures on the Multi Commodity Exchange of India Ltd. traded at 29,310 ($476) rupees per 10 grams today, 16 percent below the record 35,074 rupees reached on Aug. 28.
The rupee tumbled to a record 68.845 against the dollar on Aug. 28 and was at 61.8625 today. The deficit widened to $21.8 billion in April through June from $18.1 billion in the previous quarter, the central bank said Sept. 30. The gap was a record $87.8 billion in the year ended March 31.
The third quarter has been very difficult for the bullion industry as it was the off-season for demand and because of the confusion about import policy, Somasundaram P.R., managing director of the World Gold Council in India, said yesterday. Consumption in the last quarter will be 250 tons to 300 tons compared with 260.3 tons a year earlier because of festivals and a good monsoon, he said.
Consumption in India, which ships in almost all the bullion it uses, accounted for 20 percent of global demand in 2012, according to the council.
--Editors: Thomas Kutty Abraham, James Poole