KOLKATA (miningweekly.com) – The sharp spike in gold imports in January, estimated to be double that of the previous month, was forcing a government rethink on an import duty cut it was proposing for next month.

The 40 t imported last month - a six-month high - was 50% lower than January 2013, but the month-on-month increase was a cause for concern and was being monitored closely, a government official said.

The import duty cut being contemplated for end-March 2014 could be jeopardised if the January increase was confirmed to be a trend rather than a spike, he explained.

Indian gold imports had fallen to a low of 3.38 t in August 2013, after the Indian government hiked import duties to 10%. However, in subsequent months it had been on an upward curve increasing to 11.2 t in September, 21 t in November and 20 t in December 2013.

According to those in trade circles, total gold import during the financial year ending March 31, 2014 was expected to be in the range of 520 t to 550 t, down from 845 t in 2012/13.

Though imports were falling on a year-on-year basis, the Finance Minister has made it clear that all the pros and cons associated with easing restrictions, including the proposed 2% reduction in import duty, would be carefully considered and no decision would be taken that could risk the lower current account deficit (CAD) target set, the official said.

The Indian government in the interim Union Budget presented earlier this month stated that the CAD, which is the difference between foreign exchange inflow and outflow, would be maintained at $45-billion, during the 12-month period ending March 31, 2014, down from $88-billion in the corresponding previous period - largely helped by the slew of measures to reduce gold imports.

According to the official, the ground rules had been made clear - the country could not afford to spend $50-billion to $60-billion each year on importing gold and the CAD level would have to be maintained at such a level that it could be safely financed through foreign exchange inflows.

The earlier contemplation of an import duty cut of about 2% was informed by a belief that gold imports would be on a sustainable downward curve but with the declining trend of last year showing signs of a reversal now, easing restrictions would not be prudent, the official added.

However, the gold jewellery sector and those in trade circles, who have been strongly lobbying for a duty cut, maintained that a high import duty was resulting in a spurt in smuggling gold into the country. Even government officials concede the rise in smuggling, which has been variously estimated at between 150 t to 200 t, since the duty was hiked.