According to informed sources, the record expansion of India's trade deficit last month and the rupee dropping to its historic low were caused by a surge in gold imports, which may have resulted from calculation errors.
Insiders stated that after the change in statistical methodology in July, Indian officials re-calculated the shipment volumes of gold in warehouses. These sources requested anonymity until an official clarification is made. Some insiders said efforts are currently being made to reconcile this data, and November's figures may have been overstated by as much as 50 tons, nearly 30% of the total gold imports for that month.
If errors are indeed confirmed, the trade figures may be revised, and traders might expect adjustments in foreign exchange rates. This would also alleviate intense speculation about the state of the Indian economy triggered by the data, as economists consider whether the surge in gold purchases indicates inflation-hedging pressures or suggests that prosperous conditions have emerged in inland areas due to a good crop harvest.
Analysts Sonal Varma and Aurodeep Nandi from Nomura Holdings wrote in a report following the release of trade figures: “We believe that the increase in November gold imports cannot be explained solely by festive demand, which represents a significant increase in gold procurement, but the reasons remain unclear to us.”
India's trade deficit in November ballooned to a record $37.8 billion, primarily due to gold imports increasing fourfold to a record $14.8 billion, compared to just $3.44 billion in the same period last year. Although gold imports have been steadily rising since the government reduced the gold import tax from 15% to 6% in July, this sharp increase has left analysts puzzled.
According to sources familiar with India's import system, officials may have combined the imported gold held by custodians in free trade zone warehouses with the amounts reported by domestic banks (which purchase gold from custodians).
Generally, gold is not considered imported until it is withdrawn from the warehouse. However, the recent integration of the customs clearance system is seen as a potential source of issues.
As of the end of June, import customs declarations for 'warehousing' and 'offshore goods' not considered imports are maintained by the Ministry of Commerce's SEZ Online system, while customs declarations for actual imports for 'personal consumption' are processed by India's Customs electronic trade/ electronic data interchange (ICEGATE). Since July, ICEGATE has integrated custodian and consumption data into a common system to expedite data dissemination.
The issue of double counting may not have been noticed earlier, becoming apparent only in November, as domestic prices in India were at least 10% lower than international prices, triggering disproportionately large purchases that significantly inflated import data.
Some have stated that the total amount of gold imported by India each year may still be within 800-1,000 tons, but added that the final data reconciliation has not yet been completed.
Article forwarded from: Jinshi Data
