India's gold import problem: How a UAE treaty may have exacerbated it, Pg13

Key Highlights:

• India's gold import in FY26 surged by nearly 25% to $71.97 billion, although the import volume decreased to 721.04 tonnes.
• Gold prices have increased by over 40% in the last year, contributing to the inflated import bill.
• The India-UAE Comprehensive Economic Partnership Agreement (CEPA), signed in February 2022, has inadvertently incentivized bullion imports over doré due to tariff concessions.
• Prime Minister Modi has urged citizens to postpone non-essential gold purchases to conserve foreign exchange reserves amid the West Asia crisis.

Detailed Insights:

• India's heavy reliance on gold imports, approximately 750 tonnes annually, poses a macroeconomic challenge, especially during external shocks, potentially widening the Current Account Deficit (CAD).
• The CEPA with the UAE has created unintended consequences by inverting the intended duty differential between bullion and doré, inflating the import bill due to a lack of cheaper sourcing and refining capacity.

India's Gold Imports.png

• Alternative gold sources, such as Argentina, Peru, and the Dominican Republic, collectively represent only 15% of India's total gold imports, while imports of gold ores and concentrates are increasing from Colombia, Taiwan, and Peru.
• Countries like Switzerland have become gold trading hubs by using London Bullion Market Association (LBMA) refineries to transform low-cost gold doré into high purity bullion, generating approximately 40% value addition.
• India's gold-refining ecosystem faces bottlenecks, including limited international accreditation with only one LBMA-accredited refinery, hindering global integration and the ability to position itself within international supply chains, as highlighted by a NITI Aayog report.

Key Concepts Involved:

• Current Account Deficit (CAD): A measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
• Bullion: Gold or silver in bulk before coining, or valued by weight.
• Doré: A semi-pure alloy of gold and silver, typically produced at mine sites.
• LBMA (London Bullion Market Association): The international trade association representing the London wholesale over-the-counter market for gold and silver.