While India’s gross gold bullion import in 2015 reached the
third highest amount ever at 947 tonnes and gross silver bullion import
reached the highest amount ever at 8,504 tonnes, the Indian
government is perpetually trying to obstruct the populace from protecting
their wealth.
Last week I was going through gold and silver trade data released by the
Indian Directorate General of
Commercial Intelligence and Statistics (DGCIS) and observed strong import
of precious metals in 2015. At the same time I was reading the documents,
news came out that stated the Indian government was to implement extra rules
to hinder its people from buying gold. In my view, the situation in India is
another perfect example of a government’s nonsensical fight against the
economic tide. Central banks do it all time don’t they?
In an ongoing failure to understand what capitalism is about, the Indian
government continues to “disagree” with its citizenry where savings should be
placed. Whenever the Indian people increase gold purchases to secure their
financial wellbeing, the government is keen to find new tactics to suppress
this free market expression. The government aims the country’s wealth to be
where it suits them – in the fiat currency they issue and control, but the
populace believes fiat
currency is inherently vulnerable and chooses physical gold for its
long-term wealth preservation. It seems the more the Indian rulers resist
private gold demand, the stronger the forces they’re fighting become. As
we’ll see below, most undertakings by the government to keep its people from
buying gold have been in vain.
First, let’s have a look at an overview of all the measures undertaken in
the past years. At the end of the post I will present the details of the
latest gold and silver import data (India mostly relies on import for its
precious metals hunger).
When the price of gold made its famous nosedive in April 2013 Indian
physical gold demand skyrocketed off the charts; in May 2013 India imported
165 tonnes of gold, the highest monthly tonnage ever. In reaction, the
government decided in June 2013 to raise the import duty on gold from 4 % to
8 % and in August 2013 from 8 % to 10 %. In addition, in July 2013 the “80/20
rule” was implemented, forcing traders to export 20 % of all imported
gold. The import duty on silver was raised to 10 % as well, although silver
was not subjected to the 80/20 rule. The result was that by September 2013
India’s gold import through official channels had fallen to a mere 16 tonnes,
but smuggling in gold had exploded. Gold trade was diverted to the black
market with all due consequences – thriving criminality threatens social and
economic stability – and India’s established gold industry organizations
fiercely objected the government’s policy. Another consequence was that
silver import has seen spectacular increases ever since (see further
below).
Although heavily restricted, Indian gold import through official channels
bounced of the lows in mid 2014. Eventually, the 80/20 rule was withdrawn
in November 2014 while the Indian government was preparing a new trick: the
gold monetization scheme, which was to “to mobilize
the gold held by households and institutions in the country” and ”be able to
reduce reliance on import of gold over time to meet domestic demand”. In my
words, the scheme was intended to oversubscribe the people’s gold by
exciting them to deposit their metal at commercial banks. The catch is that
the gold depositor is technically lending
his gold to the bank, whereby he risks losing his metal if the counterparty
goes belly up – although these risks were not disclosed in the brochure.
Ironically, the essence why people buy gold in the first place is protect
their wealth, not to take risks (ie by lending). Not surprisingly, the gold
monetization scheme has failed miserably. In the first two weeks after its
launch in November 2015 only
400 grams trickled in – bear in mind, there is an estimated 20,000 tonnes
of physical gold owned by the Indian private sector. It does not look like
the gold monetization scheme will ever succeed in India.
Data from the World Gold Council shows Indian consumer gold demand
accounted for 848.9 tonnes in 2015. Reasons enough for the Indian rulers to
continue their hopeless quest to limit demand. In January 2016 the government
introduced
a rule that forces jewelry buyers to show a Permanent
Account Number (PAN), which the vast
majority of rural customers do not have, for any purchase above Rs 200,000.
And it proposed the re-imposition
of a 1 % excise duty. Remarkably, the excise duty was first introduced in
2012 but rolled
back the same year as jewelers went on strike. This time around jewelers
are seeking the same relief. Since 2 March they’re on strike indefinitely
(speculating; the excise duty will not succeed).
Let’s head over to the most recent (final) trade data released by India’s
customs department, the DGCIS. India’s gross gold bullion import in
December 2015 was robust at 111 tonnes, up 9 % from November and up
218 % from December 2014. Total gross gold import for India in 2015
came in at 947 tonnes, up 22 % from 2014, the third highest
amount ever.
India gross exported 11 tonnes of gold bullion in December 2015,
down 22 % from November and up 35 % from December 2014. Gross gold
export for the year 2015 aggregated to 150 tonnes, the highest ever,
up 136 % compared to 2014. Gold bullion export might be elevated due to India’s
increased refining capacity.
Net gold bullion import in December 2015 came in at 100 tonnes.
Total net gold import for 2015 accounted for 797 tonnes, up 11 % year on
year.
India’s gross silver bullion import was very strong in December
2015 at 1,042 tonnes, up 71 % from November and up 198 % from
December 2014. Total gross silver import in 2015 accounted for a
staggering 8,504 tonnes (!), up 20 % from 2014.
As, silver bullion export from India is neglectable, net
import in December 2015 accounted for 1,041 tonnes and total net import for
2015 came in at 8,494 tonnes. The latter being 31 % of world silver
mining output!
From looking at official precious metals import and demand numbers we can
wonder if the many restrictions from the Indian government have accomplished
anything to their likes. One thing is for sure; the Indian people did not
substantially bought less gold – and did buy substantially more silver.
Instead of hopelessly resisting and intervening in the Indian economy, the
government could also choose to allow free market forces and/or even
support the people’s love for gold to bolster India’s gold industry for
it to become a global powerhouse. Wouldn’t that be much more effective?
Kindly note, the cross-border trade tonnages for this post, calculated
by myself and Nick Laird from Sharelynx.com,
are based on the Rupee values disclosed by the DGCIS and the monthly average
metal prices. The gold and silver bullion import and export figures mentioned
in this post exclude smuggling and cross-border trade in precious metals
jewelry.
