gold imports

India’s Exports Drop by 6% to $26.13 Billion in August

Imports too declined by 13.45% to $39.58 billion, narrowing the trade deficit to $13.45 billion in August.

New Delhi: India’s exports dropped by 6.05% to $26.13 billion in August compared to the year-ago month, official data released on Friday showed.

Imports too declined by 13.45% to $39.58 billion, narrowing trade deficit to $13.45 billion in August. The deficit was $17.92 billion in August a year ago.

Export sectors that recorded positive growth in the last month include iron ore, electronic goods, spices, and marine products.

Shipments of gems and jewellery, engineering goods, petroleum products recorded negative growth, according to the data.

Also read: Narendra Modi Must Stop Any 11th-Hour Attempt to Erode Fiscal Autonomy of States

Oil imports declined by 8.9% to $10.88 billion, and non-oil imports fell by 15% to $28.71 billion.

Cumulatively, during April-August 2019, exports were down 1.53% to $133.54 billion while imports contracted by 5.68% to $206.39 billion.

Gold imports plunged 62.49% to $1.36 billion in August.

India’s Merchandise Exports Limp Along Even as Global Trade Picks Up

The precipitous drop in October exports shows that the feared GST-fuelled disruption of MSME supply chains has now started taking its toll on the country’s export performance.

After recovering in September, exports from labour-intensive sectors witnessed steep drops in October. Credit: Reuters

New Delhi: India’s merchandise exports have turned negative in October, with a surprising 1.12% drop, and are expected to fall further in November as exporters turn away clients and new orders due to the difficulty of complying with the Goods and Services Tax (GST) regime.

The fall in exports comes at a time when global trade is booming.

As per the latest forecast by the World Trade Organisation (WTO), global trade is likely to grow by 3.6% in 2017, up from the lacklustre 1.3% growth in 2016. The strong performance of world trade in 2017 is attributed to the resurgence of Asian trade flows and recovery of import demand in North America.

The timing of India’s export drop is equally perplexing given that the WTO upgraded its earlier world trade growth forecast of 2.4% on September 21. Experts say that the the decline is also surprising given that exports are usually strong in the months leading up to Christmas as retailers in Western markets build stocks.

India’s October export performance contrasts with those of its Asian trade rivals like Bangladesh, Vietnam and China who reported positive growth. Vietnam reported nearly 21.3% growth in monthly exports, China nearly 7% and Bangladesh 6.4% during the month.

India had reported impressive export growth of 25.67% in September. The precipitous drop in the October exports shows that the feared disruption in MSME supply chains has now started taking its toll on the country’s export performance.

Exports from labour-intensive industries, such as textiles, gems and jewelry and leather and leather goods have reported steep drops in October.

Decline in dollar value of exports from labour-intensive sectors in October 2017

Sector	%decline in exports
Gems and Jewellery	24.51
Readymade garments	39.23
Leather and leather products	9.81
Man-made yarn/fabrics/made-ups, etc	5.91
Carpet	31.32

Source: Commerce ministry

The ready-made garment sector reported a 39% drop in dollar export earnings during October, the gems and jewellery sector nearly 25% and leather and leather goods about 10%. All these sectors are dominated by MSMEs.

The sectors that have bucked the trend and reported positive export growth during October are engineering goods, petroleum products and organic/inorganic chemicals. These sectors are highly capital intensive and dominated by big corporate players who have better managed GST compliance and escaped unscathed from demonetisation.

Garment exporters say their export competitiveness has fallen due to the increase in working capital requirement and reduction in incentives. As per industry estimates, Indian garment exports have been 8-10% costlier in the wake of the GST. This is also impacting exporters’ margins in addition to sales volumes.

Industry sources say that exporters are not able to pass on the increased cost to customers as they are getting tough competition from suppliers from countries like Bangladesh, Vietnam, Sri Lanka and Cambodia, some of which are also enjoying duty-free access to the EU market which gives them 5% head start. As a result, India exporters’ cost disadvantage works out to 13-15% in the final analysis.

Merchandise export growth in select countries during October 2017

Country	% export growth
India	(-1.12)
Bangladesh	6.4
Vietnam	21.3
China	6.9

Source: Commerce ministries of respective countries

In rupee terms, garment exporters’ earnings dipped by 41% from Rs 9,100 crore a year ago to Rs 5,398 crore in October.

Alarmed over the sharp decline in October exports, the government has offered more incentives to provide relief to besieged garment exporters. Post-GST rates for claiming rebate of state taxes under the scheme for remission of state levies (RoSL) on exports of readymade garments and made-ups have been announced. The government has also doubled the rates for incentives under merchandise export from India (MEIS) scheme to 4%.

New MEIS rates are effective from November 1.

A textiles ministry release said post-GST rates of RoSL are up to a maximum of 1.70% for cotton garments, 1.25% for man-made fibre, silk and woollen garments and 1.48% for apparel of blends.

Meanwhile, the commerce ministry is working on a relief package for gems and jewellery exporters. The ministry has already asked the gems and jewellery industry to work out a proper business plan to promote growth of the sector.

“We have some time left, in another few weeks we have to finalise it as Budget will be in February, so we have to work on that (relief package for gems and jewellery exporters),” commerce and industry minister Suresh Prabhu said recently.

The Gems and Jewellery Export Promotion Council has demanded that import duty on gold should be slashed to 4% from the current 10% level.

The trade body is mindful of the government’s concern that a lower import duty could lead to a spurt in gold imports but hopes that a cut would be finally made as a trade-off.

Another MSME-dominated sector, leather industry, estimates that it would need additional capital of over Rs 3,000 crore following implementation of the GST. There is a fear in the industry that many units could close down due to failure to raise capital.

The Council for Leather Exports, an industry body, has demanded that Centre’s duty drawback scheme for leather exporters should be extended till March 2018 as exporters’ capital was blocked on account of GST payment.

The industry body also wants the GST on finished leather goods and job work reduced to 5% from the current level of 12% and 18% respectively.

India’s competitiveness in the labour-intensive export sectors has been on a declining path in the last decade and needs significant structural reforms that need to be addressed, rating agency Crisil said in a recent report.

Crisil analysed the competitiveness of the labour intensive gems and jewellery, readymade garments and leather and leather products, and found these have become less competitive over the last decade.

“It is disquieting that India’s export growth is decelerating at a time when the global environment is becoming more conducive for trade. The reason is not currency strength, but weakening competitiveness. This needs to be reversed if India has to see sustainable, employment-generating exports growth,” Crisil said.

Looming Gold Imports and Rising Oil Prices Throw Up Initial Warning Signs on Deficit Front

Gold is widely seen as a safe investment option in times of economic crisis. So is the gold import surge a sign of falling confidence in the Modi government’s economic management?

A salesman displays gold bars inside a jewellery shop on the occasion of the Akshaya Tritiya festival in Hyderabad May 6, 2011. Credit: Reuters/Krishnendu Halder/Files

New Delhi: The twin curse of gold and crude oil is revisiting India after peaking in 2013-14 and could throw haywire the Narendra Modi government’s calculations on current account deficit (CAD) and fiscal deficit.

If the trend continues, India could see a repeat of the 2013 rupee meltdown when the rupee lost 21% of its value against the greenback in a span of just two months after the then Federal Reserve chairman Ben Bernake hinted at an impending tapering of the Quantitative Easing (QE) in a testimony to the Congress on June 19.

Gold imports more than doubled during April-September from the same period last year, while the price of Indian crude basket rose by 17% between August 28 and November 1.

Merchandise trade deficit increased by 66% to $72.12 billion during April-September period, from $43.35 billion during the same period last year.

India’s overall trade deficit (after taking into account net services exports and remittances) increased by a whopping 166% to $43.813 billion during April-September from the same period last year, driven by the unprecedented surge in gold imports. Trade deficit is estimated at $16.467 billion in April-September 2016.

India is the world’s second largest gold consumer after China. Its gold import bill in 2016-17 is estimated at $27.30 billion. In the current fiscal, gold import bill has already hit $16.85 billion up to September, registering a growth of 116% over the same period last year.

The country’s August gold imports climbed to an estimated 60 tonne from 22.3 tonne a year ago. In the first eight months of 2017, the country’s imports rose to 617.5 tonne, up 158% from a year ago.

India imposes a 10% import duty on gold. However, gold import from countries like Korea with whom India has entered into free trade agreement is exempted from duty. To avoid duty-free imports from such countries, India had imposed a 12.5% excise duty prior to the roll-out of goods and services tax (GST).

But introduction of the indirect tax reform on July 1 led to scrapping of excise duty and other local taxes. Taking advantage of this loophole, traders imported large volumes of gold from Korea in July. Later, the government restricted import of gold from Korea on August 25.

India’s gold demand this fiscal has been much higher compared to other countries. For example, while global gold import rose by a modest 8% in April-June 2017 quarter, India saw a jump of 41% in its yellow metal import.

In fact, China, world’s biggest consumer of gold, saw its import decline by 5% during the same period.

In the June quarter, India’s current account deficit (CAD) soared to a four-year high of $14.3 billion, or 2.4% of GDP, on the back of gold import surge.

“The widening of the CAD on a year-on-year basis was primarily on account of a higher trade deficit ($41.2 billion) brought about by a larger increase in merchandise imports relative to exports,” the RBI said.

India meets more than 80% of its crude oil requirement from imports. The external environment has been benign for this government so far with international crude oil prices ruling at less than half their levels in 2013-14. But the situation has started changing now.

India meets more than 80% of its crude oil requirement from imports. Credit: Reuters

The oil has hardened in recent months and is expected to remain firm next year too.

“The large supply surpluses of 2014-16 have disappeared in 2017, and the market recorded a large deficit in the second quarter for the first time since 2013, partly because of unexpectedly large growth in demand,” says the World Bank’s in its latest Commodity Markets Outlook report.

The World Bank report has forecast average crude oil price at $56 per barrel in 2018, up from $53 this year (in nominal dollar terms). If oil prices continue to harden, the CAD could further widen and government’s fiscal arithmetic go haywire, potentially causing panic among investors.

Gold is widely seen as a safe investment option in times of economic crisis. So is the gold import surge a sign of falling confidence in the Modi government’s economic management?

Once again, all eyes are on the next move by the Federal Reserve as India’s macroeconomic fundamentals come under pressure. If the US central bank goes ahead with monetary tightening and hikes interest rates in its December meeting, the rupee could again go into a tailspin.

Gold Imports: How a GST Loophole is Triggering a Game of Whack-a-Mole

The lower cost of gold through an unintended loophole triggered increased imports from South Korea. But banning this will only unravel the point of a free-trade agreement.

Credit: Reuters

Editor’s note: Gold imports from South Korea surged to $339 million between July 1, 2017, and August 3, 2017. In the same period last year, gold imports from the country were only $70.5 million.

So this story is worth a tell.

India has had this major problem with gold imports. So they introduce a 10% import duty on gold. But then, India also has free trade agreements (FTA) with some countries – notably, South Korea. Where they make some refinements to gold, and then export it everywhere.

A free trade agreement means no customs duty. But you can’t have zero import duty from South Korea, and then 10% from everywhere else, because then everyone in India will simply import gold from South Korea.

So, India had to do something. What it did was to introduce a 12.5% excise duty on gold. When you import something that has an excise duty there is a “countervailing duty” (CVD) that applies even if you have no customs duty. This is simple – if you would pay 12.5% to make that gold in India, you will pay that 12.5% on imports from anywhere else as well.

Now, from July 1, India introduced a new tax regime called GST. The goods and services tax removes the entire concept of excise duty. For gold, the GST is 3%.

Guess what happens? Customs duty still applies, so if you import from Dubai, you pay 10% customs duty and then 3% GST.

But what happens if you import from Korea? There cannot be customs duty because of the FTA. The GST is 3% and there is no more excise duty, and thus, no countervailing duty.

So the effective rate for imports from Korea is just 3%.

India and Indians love loopholes. From July 1 to August 21, around 27 tonnes of gold – worth about Rs. 8,000 crore – was imported from Korea. That’s a lot more than it used to – and the lower cost of gold through an unintended loophole triggered the action.

They plugged it, but Indonesia?

On August 25, India removed gold and silver from the list of “free” items from Korean imports. Of course, Korea doesn’t like it. In a free trade agreement, you can’t unilaterally decide that something you import is taxed but other stuff is not. The government’s defense is that the imports from Korea is actually gold from Dubai which is only marginally changed in Korea.

Expect some drama.

Meanwhile, Indonesia – another country which we have an FTA with – is now seeing big gold exports to India.

Until, we guess, the Indian government bans it. Here the Indian government is actually on sticky ground because Indonesia actually mines gold, so it’s not like they have to import it from Dubai or elsewhere. Bans will unwind the FTA and create a bitter taste for anyone with an FTA with India.

Two things we learn: India loves its gold, and it loves to find loopholes in laws. It’s actually admirable – because in all honesty this extra duty on gold is really not a good thing – you can’t increase a price of something that is attractive for its price, in an attempt to decrease demand.

In any case, plugging loopholes is the job of the government; you can’t second guess what is “desirable” and what is not.

This piece was first published on Capitalmind and has been reproduced here with permission.

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