India’s appetite for gold, a key driver of the country’s current account deficit (CAD), has shown signs of cooling, with imports declining 4.23 per cent to $12.64 billion in the April-July period. The slowdown was attributed to a combination of global economic uncertainty and elevated gold prices.

The world’s second-largest gold consumer had imported $13.2 billion worth of the precious metal in the same period last year.

The trend of deceleration was evident in July, with imports plummeting 10.65 per cent to $3.13 billion compared with the same month in 2023.

The decline was even more pronounced in June (-38.66 per cent) and May (-9.76 per cent). April, however, witnessed a surge in imports to $3.11 billion from a mere $1 billion in the previous year.

Industry experts attributed the slowdown to the deterrent effect of high gold prices.

However, they anticipate a resurgence in demand from September onwards as the festive season approaches, a period traditionally marked by robust gold purchases in India. The recent cut in import duty on gold and silver to 6 per cent from 15 per cent is also expected to stimulate imports.

Aditi Nayar, chief economist, ICRA, said “the lower duties after the Union Budget may raise the value of gold imports in the next few months.”

Budget 2024-25 has lowered the customs duty on gold, silver, platinum, etc. to a range of 5.0-7.5 per cent from 7.5-15.4 per cent earlier. This could result in a minor increase in the gems and jewellery trade deficit in the coming months, analysts said.

Despite the dip in gold imports, India’s trade deficit widened to $23.5 billion in July, highlighting persistent imbalances in the country’s external accounts.

The precious metal, which accounts for over 5 per cent of India’s total imports, is primarily consumed by the domestic jewellery industry.

However, gems and jewellery exports contracted by 7.45 per cent to $9.1 billion in the April-July period, adding to the country’s trade woes.

Switzerland remains India’s primary gold supplier, commanding a 40 per cent share of the market. The UAE and South Africa follow with over 16 per cent and 10 per cent shares, respectively.

Concerns over the country’s trade balance have intensified amid a surge in precious metal imports under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

The pact allows duty-free imports of gold, silver, platinum and diamonds from the UAE, raising fears of significant revenue losses for India.

The Global Trade Research Initiative (GTRI) has flagged concerns about the CEPA, alleging that many imports do not comply with rules of origin.

This raises questions about the actual benefits India is deriving from the trade deal. The government is currently reviewing certain provisions of the CEPA to address these issues.

India’s current account balance has shown signs of improvement, with a surplus recorded in the March quarter. However, the widening trade deficit remains a key challenge.

India recorded a current account surplus of $5.7 billion or 0.6 per cent of GDP in the March quarter.

For FY24, the current account deficit narrowed to $23.2 billion or 0.7 per cent of GDP against $67 billion or 2 per cent of GDP in FY23.

A current account deficit occurs when the value of goods and services imported and other payments exceeds the value of the export of goods and services and other receipts by a country in a particular period.

The government will need to carefully monitor gold imports and their impact on the overall balance of payments.