India Continues to Bring Home the Gold Despite Import Restrictions.

India’s demand for gold is likely to remain high this year despite government attempts to slow the flow of the precious metal to the south Asian nation.

India lost its position as the world’s top consumer of gold to China last year and it will likely stay at number two this year as both countries are expected to see their gold demand stay around the same levels they were last year, said the World Gold Council Tuesday.

India’s demand for gold in 2014 will likely be between 900 and 1,000 metric tons, little changed from the 975 tons it consumed last year.

India has ratcheted up taxes and restrictions on gold imports as it has tried to rein in its chronic current-account deficit. On paper it looks like India has succeeded because its trade and current account gaps have shrunk over the last year.  But what has really happened, some skeptics say, is that much of India’s gold imports have been pushed off the books and become unrecorded smuggled gold.

Around 200 tons of gold was likely smuggled into India last year, the World Gold Council estimates. It said that whether India continues its restrictions on gold or not, its gold-loving citizens are likely to snap up more than 900 tons this year again.

“Gold demand is here to stay, whether we like it or not,” said P.R. Somasundaram, managing director at the World Gold Council’s India office.

While customs officials have reported a surge in smuggled gold seizures, what they catch is less than 1% of what gets into the country.

That hasn’t stopped the government from claiming victory over the country’s deficit problem. Economists predict India’s current account deficit will fall to less than $45 billion in the just-ended financial year from $88 billion a year earlier.

Gold importers and jewelers say they are suffering as it has become more difficult and expensive for them to acquire gold in India. Demand has not changed, they say, it is just being supplied by smugglers. India needs to ease its restrictions on gold or risk hurting the jewelry industry which is one of the country’s biggest exporters.

“We are expecting the new government will come with some positive approach,” after national elections which end next month, said Haresh Soni, chairman of All India Gems and Jewelry Trade Federation.

If India continues to crimp legitimate gold supplies with unnecessary curbs, the country will lose its jewelry export customers to China, said Mr. Somasundaram of the World Gold Council.

Source : blogs.wsj.com