Gold Imports by India Seen Rebounding by Billionaire Jeweler

Mar 27, 2014 7:49 am ET

(Updates prices in fifth paragraph.)

March 27 (Bloomberg) -- Gold imports by India, the second- biggest consumer, will rebound in the second half as a new government may ease trade curbs while festivals and weddings spur demand, said billionaire jeweler T.S. Kalyanaraman.

The pickup in shipments from mid-year will help overseas purchases over 2014 match the 825 metric tons imported in 2013, Kalyanaraman, chairman of the Thrissur-India based Kalyan Jewellers Ltd., said in an interview. The curbs on bullion will probably be removed as smaller jewelers are struggling to get raw material, spurring increased smuggling, he said yesterday.

Prime Minister Manmohan Singh raised the import tax on bullion three times last year and tightened financing norms to rein in a record current-account deficit and reverse a slump in the rupee. The controls cut shipments, narrowing the deficit to the smallest in at least four years in the fourth quarter as the currency rebounded. The opposition Bharatiya Janata Party is leading in opinion polls before voting that starts April 7.

“Imports will be slow till June, and then the trend will be the opposite and we will land with the same figures as the previous year,” said Ramesh Kalyanaraman, executive director and the chairman’s son. “Sudden antibiotics are necessary when somebody is ill. But it should be a temporary thing, and we believe that the government will take off the curbs soon.”

A rebound in Indian demand may help sustain bullion’s gains this year amid forecasts by Goldman Sachs Group Inc. and Societe General SA that the metal may drop below $1,000 an ounce. Gold for immediate delivery traded at $1,294.50 an ounce at 5:14 p.m. in Mumbai, set for a second weekly loss on expectations U.S. stimulus will be cut. The decline pared this year’s rise, spurred by haven demand on tension in Ukraine, to 7.4 percent.

Record Premiums

India was surpassed by China as the largest consumer last year as imports slumped 57 percent to 205 tons in the six months to December from a year earlier, according to the World Gold Council. Sales fell at retailers including Gitanjali Gems Ltd. and Titan Co. Ltd. in the quarter ended December as premiums paid by jewelers rose to a record $160 an ounce over the London cash price because of a shortage of metal in the local market.

India, which imports almost all of the gold it consumes, accounted for 25 percent of global demand in 2013, the London- based WGC estimates. Official imports fell 4 percent to 825 tons in 2013, while unofficial flows almost doubled to 200 tons, WGC data show. China consumed a record 1,065.8 tons last year.

“If you add the smuggled gold, demand in India will be 40 to 50 percent more than in China,” Kalyanaraman said. “Demand is very much there as a lot of small, organized players are selling without bills and not showing in official figures.”

Rupee’s Rally

The Reserve Bank of India estimates bullion contributed to almost 80 percent of a record $87.8 billion deficit in the year ended March 31. The shortfall this year will be contained below $40 billion, Finance Minister Palaniappan Chidambaram said on March 7, less than the $70 billion target. That helped to spur a rally in the rupee to an eight-month high.

“The current-account deficit is under control and that might provide some kind of comfort for the new government to look at reviewing gold restrictions,” said Harish Galipelli, head of commodities and currencies at JRG Wealth Management Pvt in Hyderabad. “Pressure from the industry is increasing and also the imports from other channels are rising.”