The easing of certain gold import norms by the Reserve Bank of India (RBI) yesterday is likely to increase supply of gold in the market. According to Nomura Financial Advisory and Securities, the gold import volumes by the country may go back to around 950MT, surging by more than 25% when compared with the 750MT imported during FY ’14. At the same time, pick up in exports may offset the increased gold imports, thereby keeping the Current Account Deficit (CAD) to below 2% of the GDP.
Last July, the government had banned star trading houses from importing gold. The gold import permissions were restricted to nominated banks alone. According to estimates, the star trading houses account for almost 40% of the total gold import by the country. The RBI circular allowing seven more agencies to import gold will increase official supplies of the yellow metal.
According to Nomura, the gold import volumes saw some increase during the month of March following RBI’s decision to allow five private sector banks to import gold. The import volumes continued to increase in April as well. With further easing of gold import restrictions, the gold import bill is expected to rise to USD 38 billion during current fiscal, much higher when compared with USD 28 billion during last fiscal year.
At the same time, Nomura expects a good pick up in export momentum. It notes that the export momentum had dropped significantly during the past three to four months. The turnaround in exports will offset the deficit caused by increased gold imports. The overall CAD is likely to be restricted to below 2% of the GDP. The increased demand from advanced economies of the world will see India’s exports grow by over 5%.