A Calculation Error Has Likely Led To Projections Of Record Gold Imports

The latest media reports indicate that the surge in gold imports that has widened India’s trade deficit to a record high in November was on the back of an error in calculation. For starters, the trade deficit hit a record high in November at $37.8 billion on account of record gold imports valued at $14.9 billion, even as both—core exports and imports—declined sequentially. In fact, officials had double-counted gold shipments in warehouses following a change in methodology in July.

Many attempts are on to reconcile the data, which could have been over-estimated by as much as 50 tonnes in November or almost 30 per cent of total imports of the precious metal that month. In case the error is identified, the trade figures are likely to be revised and traders could expect some correction in the foreign-exchange rate. It would also soothe feverish speculation about the state of the economy triggered by the data, as economists pondered over whether the surge in gold purchases signalled distress and a need to hedge against inflation or a move that indicated prosperity in the hinterland caused by a healthy crop.

Until the end of June, bills of entry for ‘warehousing’ and ‘ex-bond goods’ — both not considered as imports — were maintained by SEZ Online, a department of commerce system, while the bill of entry for ‘house consumption’ — which is considered actual import — was handled by ICEGATE, which since July has integrated both custodian and consumption data in a common system for faster data dissemination.

The double counting may have gone unnoticed earlier, but became apparent only last month because domestic prices went into a discount of at least 10 per cent from global prices, triggering increased purchases, according to a Bloomberg report, that disproportionately pushed up import figures and quite significantly. The overall imports of gold could still be within the 800-1,000 tonnes that India ships in annually, as some people opine, adding that the final reconciliation has not yet been arrived at. Perhaps, it is too early to arrive at any such conclusion.

The merchandise trade deficit surged to a record high of $37.8 billion in November from $27.1 billion a month before. The higher deficit was due to a sharper sequential increase in imports, even as exports saw a fall. Meanwhile, Emkay says that the surge in imports was led by yet another increase in gold imports. The prices of gold falling in November reflects much higher volumes, driven by the wedding season and festivals’ demand as well as continued investment demand after the customs duty cut in July.

Such high levels of gold imports were, as per Icra, were likely driven by festive and marriage-related demand and are unlikely to sustain in the ensuing months, which would help to cool the upcoming merchandise trade deficit prints. It is time that officials from all concerned wings come forward with formal clarifications on the crucial matter and clear the cloud on the mounted fiscal deficit figure.