Gold Imports Crash In December, Pushing Down India’s Trade Deficit
Sharp drop in gold imports pushed down the trade deficit to $10.4 billion in December.
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India’s gold imports registered a sharp fall of 55 percent by value (in dollar terms) in the month of December 2016 as compared to the previous month.
Gold worth $1.96 billion was imported in December as compared to $4.4 billion in the preceding month and $3.5 billion in October. Year-on-year, gold imports were down 47 percent. While the government does not attribute a reason for the change in import and export trends, the volatility in gold imports may be linked to the government’s decision to withdrawn Rs 500 and Rs 1000 notes. The lack of cash in the system likely crimped demand for gold in December.
Gold forms a significant part of India’s total import bill and the sharp drop in demand in that segment meant that overall imports rose just 0.45 percent on a year-on-year basis. Imports for the month were valued at $34.25 billion.
This, in turn, led to an improvement in the trade balance.
The country’s trade deficit reduced to $10.4 billion in December as compared to $13 billion in November, a fall of over 20 percent.
India’s merchandise exports grew at a relatively healthy 5.72 percent in dollar terms in December. Exports for the month were valued at $23.88 billion.
Even as the pickup in growth of merchandise exports in December 2016 is encouraging, the bulk of the decline in the trade deficit can be attributed to lower gold imports. The high growth of exports of value added items such as engineering goods in December 2016 is a big positive. Post the note ban, the labour intensive sectors displayed a mixed trend in December 2016, with a high growth of gems & jewelery, yarns and fabrics and a mild contraction in textiles, carpets and leather items.Aditi Nayar, Principal Economist, ICRA Ltd.
Oil imports registered strong growth of 14.61 percent in December 2016 versus the previous year, as the total value stood at $7.6 billion last month.
According to ICRA, non-oil non-gold imports in December 2016 rose by 4.4 percent, led by coal, electrical & non-electrical machinery and chemicals, suggesting industrial demand and not consumer demand.