NEW DELHI— Amid a worrying economic slowdown, India is trying to reduce its massive gold imports this year to shore up its finances. Traders and experts said the country’s deep cultural attraction to gold is not likely to weaken.
As gold shipments into India in June and July fell compared to the same period last year, Finance Minister P. Chidambaram sounded optimistic.
He hoped that total imports of the yellow metal this year would add up to less than the 845 metric tons bought last year at a whopping cost of $50 billion.
The Finance Minister has been closely watching gold purchases, which are the second-biggest item in India’s import bill after crude oil. And the huge amount spent on importing the metal is depleting the country’s foreign exchange reserves and contributing to a worrying trade deficit.
The government has been struggling to moderate demand. It has doubled a tax on imports from four to eight percent this year and tightened rules for gold imports. But given India’s huge affinity for gold, experts are skeptical whether these measures will deter customers.
The head of the World Gold Council in Mumbai, Somasundaram Palamadai Ramaswamy, said restricting gold imports raises the risk of demand being met through unauthorized channels.
“The demand is ingrained in the savings habit, the social habits, the buying habits of the country and where millions of people do this..…to try and curb this demand by limiting supply is not exactly gong to be helpful in the long run, it might actually drive the demand into the grey channel,” said Somasundaram Palamadai Ramaswamy.
The World Gold Council said good monsoon rains this year are likely to raise incomes and increase purchases in the coming months, especially in rural areas where gold is a popular investment. And prices, which have fallen below last year’s levels, have only added to the metal’s allure.
Jewelers said business has been slack in the last two months, but they point out that summer is usually the off season for gold sales.
They said the real test of whether India has reduced its appetite for gold will be known during the festival and wedding season, which begins in October. Giving jewelry to brides is an age-old Indian custom.
Rajendra Bhola has a jewelry shop at the glittering Gold Souk in Gurgaon, an affluent business hub near Delhi. “Most of these people are buying for their daughter’s wedding which is their primary need," he said. "Whatever you say, it is part of their culture, it is part of their tradition and they have to buy it. You can’t change your culture overnight.”
But as India’s passion for gold deepens its economic woes, the government has made several appeals to people to reduce purchases. Economists said reducing gold imports could wipe out billions of dollars from the country’s trade deficit and strengthen the falling rupee.