India Records $56 Billion of Gold Imports in Year 2021

A major factor in the huge trade deficit of over $150 billion in 2021 was accounted for by gold. In fact, gold accounted for more than one-third of the trade deficit for calendar 2021 as India recorded highest ever gold imports at $55.6 billion tonnes. In volume terms, India imported 1050 tonnes of gold in calendar year 2021.

How does this gold import number stack up in comparison. In the year 2020, the total gold import bill stood at $22 billion. By that metrics, the gold import bill in the last one year has gone up by more than 150%. Even if you take a longer term perspective, the highest gold imports ever recorded was $53.9 billion in the year 2011. Year 2021 bettered that also. Remember, year 2011 was the previous peak in gold prices.

There were two reasons for this spike in gold imports in 2021. Firstly, there was a lot of revenge buying after a virtual drying up of gold sales in 2020 due to the lag effect of the COVID pandemic. Secondly, gold prices had fallen sharply in the global markets and local markets making a case for investing in gold. With global uncertainty still high, the correction made a case for buying gold.

Jewellers used the opportunity of lower gold prices to create inventories to be fully prepared during the festive season. In global markets, gold fell from $2,200/oz to $1,800/oz while in the Indian markets the price of gold fell from Rs.56,191/10 grams to Rs.43,300/10 grams. These lower prices led to a spurt in inventory demand for gold as jewellers stocked up on gold, fearing further Omicron restrictions.

The 1050 tonnes of gold imported through the year was fairly disparate in its distribution. For example, in December 2021, the gold imports stood at 86 tonnes compared to 84 tonnes in Dec-20. However, the peak gold imports were in March 2021 at 177 tonnes. If Mar-21 is ignored, the average monthly gold imports stood at below 80 tonnes.

One of the reasons the RBI and the government tend to be concerned about the gold import bill is that gold is an unproductive asset which normally idles as jewellery. Unlike the import of gems or crude oil, gold does not have any productive downstream applications. In a way, the RBI always remains concerned about the use of precious forex reserves to pay for the import of the yellow metal.