Gold demand to influence CAD

India’s current account deficit in the second half of 2017 would depend on the amount of gold imported into the country, says Icra.

Presently gold imports for October-November 2016 are estimated to be nearly as high as the $22 billion in FY2016.

However if the recent amendments to the Income-Tax Act dispel demand for holding of gold as well as jewellery, the gold import volumes may decline significantly in the coming months said Icra’s principal economist Aditi Nayar.

If the volume of gold imports during December 2016-March 2017 reverts to the average of around 45 tonnes per month seen in April-November 2016, then India’s current account deficit would be curtailed at around $15 billion in FY2017, she said.

“However, if the volume of gold imports in the last four months of FY2017 is elevated at an average of 70 tonnes per month, driven by continued wedding demand, India’s current account deficit could be as high as nearly $20 billion in FY2017” she added.

While combined imports of gold, silver and precious and semi-precious stones declined to $26.4 billion in April-October 2016 from $33.2 billion in April-October 2015, exports of gems and jewellery rose to $26.4 billion in April-October 2016 (in line with the imports in that period) from $23.1 billion in April-October 2015.

This suggests that either domestic stocks were drawn down extensively, or some imports were procured through unofficial channels, she said adding that anecdotal evidence suggests a sharp rise in gold imports in November 2016 was due to domestic cues.

Demand suggests that either domestic stocks were drawn down extensively or some imports were procured through unofficial channels