Banks to import yellow metal only to meet needs of jewellery exporters
India’s central bank on Monday announced steps to restrict the import of gold by banks in a move to stem the country’s widening current account deficit.
“To moderate the demand for gold for domestic use, it has been decided to restrict the import of gold on consignment basis by banks, only to meet the genuine needs of exporters of gold jewellery,” Reserve Bank of India said.
The decision takes effect immediately, the bank added in a statement.
India is the world’s biggest consumer and importer of gold, with purchases an essential part of religious festivals and weddings.
Many Indians — especially in rural areas where there are few banks — buy gold in the form of jewellery, bars and coins as a hedge against inflation.
But India is seeking to deter vast gold imports, one of the main contributors to the deficit in the current account, the broadest measure of trade.
The hefty current account deficit totalled $32.6 billion or a record 6.7 per cent of gross domestic product (GDP), in the three months to December, as imports outpaced exports.
The RBI described the widening current account deficit as the “biggest risk” to the Indian economy, when it cut interest rates earlier this month.
Earlier in the day, government data showed that gold imports rose 138 per cent in April to $7.5 billion, against $3.1 billion a year earlier.
The surge in gold purchases in April sent India’s trade deficit to $17.8 billion, up more than 72 per cent from a month earlier, official data showed, as retail buying increased after a sharp fall in global gold prices.
India imports about 900 tonnes of gold each year, mainly through designated banks. The government in January increased the import duty on gold to six per cent from four per cent.