NEW DELHI: Gold imports into India have surged in the last six months thanks to festivals, economic recovery and concerns over a new tax regime and the push for the cashless society in India.
Imports totalled 521 tonnes in the first half of this year, compared to just 510 tonnes in all of 2016.
Should buying levels continue then India could end 2017 having imported over 900 tonnes, a level not seen since 2012.
These figures are impressive given where the country’s gold demand was at the end of the 2016. The low figure of just 510 tonnes imported in the entire year was mainly thanks to a range of political and economic issues which had a more negative role than anyone foresaw.
Many of those issues are now resolved, but some had lingering effects. So it is with tentative celebration that we look at this boost in gold demand from the world’s second-largest lover of gold and ask how the country has begun to favour gold once again and if it will continue at pace.
The biggest of these events was of course the sudden announcement by the government to immediately remove all Rs500 and Rs1,000 notes by 30 December. A total of Rs15.44 trillion ($220 billion) – or 86% of the currency in circulation – was abandoned almost overnight.
Whilst many internationally and in India itself, especially their many small and medium enterprises, looked on in horror at the impact this had on savers and on the economy, the Governor of the Reserve Bank of India, Urjit Patel’s prediction that the economic recovery would be ‘V’ shaped has come to fruition.
The World Gold Council’s June newsletter draws attention to two significant indicators, the Composite PMI and the sale of motorcycles, which have demonstrated this V-recovery.
The sale of motorcycles is a good indicator of the health of India’s cash economy. Last year sales halved in one month, to their lowest in six years. The PMI dropped to its lowest level on record. Both have since rebounded.
Observers are right to be positive about Indian gold demand in the long-term. Economic growth will likely continue to push demand higher thanks to the groundswell of young Indians set to enter the workplace, growing middle class incomes and the poor performance of the rupee as a store of value.
There will inevitably be peaks and troughs and ebbs and flows along the way, but gold will remain a key part of the Indian ‘saving DNA’. Therefore India will continue to be a vital and significant source of demand in the global gold market.