The value of India’s gold imports are declining but that’s a good thing

The Indian economy hasn’t had an easy go of it of late. The triple shock of higher oil prices, foreign portfolio outflows and a weaker rupee has widened the government’s current account deficit, which measures the difference between the value of the goods and services it imports and the value of good and services it exports.

However, the government has been granted a timely reprieve in the form of lower gold imports.

In the first quarter of 2018-19, India’s gold imports declined by 25% to $8.43 billion, according to data from the Ministry of Commerce. While a part of this is due to lower demand for gold as the rupee has weakened against the dollar, it also reflects a decline in the price of gold.

Of course, these are interrelated. Global gold prices have declined amid a drop in demand, hitting a seven-month low earlier this week. However, the weak rupee has kept gold prices, in rupee terms, at a significant premium for Indian buyers.

India is one of the world’s largest importers of gold, which is widely considered a “safe haven” asset. However, with the strengthening of the dollar, investors have become wary of purchasing more gold - something that has been exacerbated further by the subsequent decline in prices.

Gold imports have declined every month in 2018 so far. This has helped keep India’s current account deficit, which tripled to nearly $49 billion in the preceding fiscal year, from spiralling further out of control.

Meanwhile, as the demand for gold falters, silver imports have been on an upswing. In June 2018, imports of the the second-choice precious metal more than doubled to $364.2 million.