Gold and silver imports slumped 80.55% to $1.05 billion in November in India, following several measures by the government to curb inbound shipments of the precious metal. Imports of gold and silver in November 2012 were at $5.4 billion.

Between April to November 2013, gold and silver imports have declined 23.78% to $25.5 billion from $33.5 billion in the same period last year. However, the Indian government is not content with the decline.

India’s Finance Minister P Chidambaram said India could neither finance a current account deficit to the order of $88 billion as it did in 2012-13, nor could it afford to pay for the import of gold to the order of $50 billion or more.

Providing a solution, the chief of the Prime Minister’s Economic Advisory Council C Rangarajan noted that India could tolerate $30 billion worth of gold imports and not the high imports brought in last year. A major reason for India’s high current account deficit (CAD) in the last fiscal was the high imports of gold. 

Both the government officials were speaking at the Economic Conclave in the Capital on December 12, wherein Chidambaram said the government would stick to the path of fiscal consolidation and endeavour to narrow the deficit to 3% of gross domestic product by 2016-17.

Incidentally, the country’s CAD shrunk to $5.2 billion, which is 1.2% of gross domestic product, for the quarter ended September 2013. The slide was so dramatic that it prompted the Reserve Bank of India (RBI) to release the numbers a month earlier than scheduled.

The RBI governor Raghuram Rajan, also present at the conclave, said that some part of the reduction in CAD was the results of the suppression of gold imports. He noted that this was necessary in the short run, but was not desirable over the medium term.

Interestingly, though a major fall in CAD has been due to the massive fall in gold imports, it has also meant that the demand for dollars to buy gold has gone down dramatically across the country. This has been one of the main reasons for the rupee increasing in value from around 69 to a dollar end August to around 61 to a dollar at present.

Observing that India could not afford a high CAD, which touched $88 billion in 2012-13, Chidambaram said the country should avoid importing gold and other raw materials that were available at home. He was referring to the import of coal and questioned the need especially with the country boasting of coal in abundance.

Rangarajan added that as financial assets become more attractive and inflation comes down, the demand for gold would naturally subside. The government has been trying to ensure that investments in other financial assets supersede the buying of gold.

The government’s measures appear to be working. Total merchandise imports last month also declined, helping to narrow the trade deficit to $9.21 billion, the second lowest level this financial year. It was at $6.76 billion in September.

The overall trade deficit from April to November slid by almost $30 billion. The trade deficit stood at $99.9 billion during the first eight months of this financial year as compared to $129.2 billion in the same period last year. Though India’s government gets tough, the precious metal continues to lure, especially now given its current drop in price.