The stage appears to be set for India to reduce import duty on gold.

Government data released on Friday showed that gold and silver imports have declined 40% to $33.46 billion in 2013-14, as compared to the $55.79 billion in 2012-13. India’s exports have jumped a bit, while imports dipped by over 8% narrowing the trade deficit.

A sharp decrease in gold and silver imports has also helped narrow the trade gap to $138.59 billion from $190.33 billion, though crude oil imports continued to surge ahead.

Bimal Jalan, former governer with India’s central bank, the Reserve Bank of India (RBI), told newspersons that if India’s current account deficit (CAD) “is okay, and it is comfortable just now, there is no reason to control gold imports, particularly if (gold) prices are reasonable.”

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Stating that CAD could widen, the ex-banker added that he did not envisage a problem in the near future, given the current comfortable scenario.

Jalan said that there were multiple causes that were causing a worry to the government. “There are demand issues, (the threat of) China competition, then you have exchange rate issues, but as of now, the CAD outlook is good,” he said.

Terming the gold curbs “a temporary measure,” Jalan added, “we should try and do the best we can. Gold is not an asset that one wants to encourage holding because we want investments in real assets, but still there is no reason why those who want gold, cannot hold it.”

The former central indicated that given the current low price of gold, if imports of the precious metal jump by 20% to 25% in the near term, it would not affect India’s current account deficit.

A clear signal has been sent out that though the government prefers investment in other asset classes, they can no longer ignore the demand of the populace, to bring in more gold.

The Indian government had increased customs duty on gold to 10% and banned the import of gold coins and medallions, with the RBI linking imports of the metal to exports.

“Import duty of 10% that was slapped on inbound shipments of gold was aimed at narrowing the current account deficit. With India’s 2013/14 CAD expected to be $35 billion, or about 2% of GDP, down from the historic high of 4.8% of GDP or $88.2 billion CAD in 2012-13, the writing is on the wall,” said A Mehta, an official of a chambers body.

He added that gold imports had dropped from $7.7 billion in May 2013, to $1.4 billion in January this year. In contrast, the monthly run rate of gold imports, in value terms, has remained above $5 billion since January 2012. “Clearly, the government feels there is no need to continue restrictions on gold imports,” said Mehta.

Sanjay Budhia, chairman of the Confederation of Indian Industry said that it is apparent from the recently released export data of March 2014, that “India has missed its export target of $325 billion for this fiscal, as currently it stands at $312 billion.”

He added: “Factors that attributed to the slowdown in exports were the curb on gold imports, coupled with its direct impact on the jewellery export, exchange rate volatility and a steep hike in global oil prices. Exports to neighbouring China also slumped during March, which could be an indicator of the looming slowdown in global demand.”

Stating that the “economic conditions in the US and the euro zone are not very favourable for exports”, Budhia said the organisation hoped that the Indian government would help exporters, and address their problems on a priority basis.

Gold is imported into India to mainly meet the demand of the jewellery sector. According to figures from the Gems and Jewellery Export Promotion Council, cumulative gold jewellery exports from April 2013 to February 2014 slid 45.6% to $6.35 billion.

Exports of gold jewellery have taken a drubbing in 2013-14, with the Indian government’s gold restrictions. Pankaj Parekh, vice chairman of the Council said a major part of the blame needed to placed at the door of the customs department, since there have been inordinate delays in releasing consignments of imported gold.

India’s gems and jewellery exports during February 2014 fell 8.2% to $3.14 billion from the $3.43 billion during February 2013. For the 11 month period ending February 2014, it fell 9.9% to $30.82 billion.

However, for the first time in fiscal 2013-14, exports of gold jewellery was in the positive, rising a measely 1.04% in February.

Exports of cut and polished diamonds too rose 16.11% to $2.16 billion in February 2014, while it rose 20.5% in the 11 month period to $18.14 billion. Silver jewellery exports rose 45.33% to $84.1 million in February 2014 and rose 89% in the 11 month period to $1.35 billion, data showed.