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ICRA says Gold import will determine India’s current account deficit

Gold ImportIn October-November 2016, the gold import bill of is expected to be similar to the first six months, the country’s current account deficit (CAD) for these two months will be greater than the first half of the season as per ICRA. This year for gold, the remaining demand would further impact the deficit size of second half of 2016-17.
Within $20 billion, India’s CAD should be which was near $22 billion in FY16, As per ICRA report. The gold import volumes may decline significantly in coming months if the recent amendments to the IncomeTax Act dispel demand for the holding of gold as well as jewellery. During December2016-March 2017, assuming that the volume of gold imports reverts to an average of around 45 tonnes per month which is seen in April-November 2016, in FY2017, India’s current account deficit would be curtailed at around $15 billion. However, if the quantity of gold imports in the last four months of FY2017 is raised at an average of 70 tonnes per month, driven by an extended wedding demand, India’s current account deficit could be as much as nearly $20 billion dollars in FY2017” informed Aditi Nayar, the Principal Economist at ICRA.
From $33.2 billion in April- October 2015 to $26.4 billion in April¬-October 2016, Imports of gold, silver and precious and semi-precious stones have fallen, whereas from $23.1 billion in April–October 2015 to $26.4 billion in April-¬October 2016 exports have increased.
Either the domestic stock was emptied or some unofficial channels used for imports concluded by these figures. The rise in Nov 2016 gold imports occurred to get stock for the wedding and festive season and may be to an extent as an impact of demonetization.
Through the legal channels, the demand for gold in the coming few months will impact the CAD in the second half this fiscal. In a range of $1150-1250 per ounce, ICRA expects the gold prices as per the international market trends.
In the third quarter of this fiscal, The oil imports will not see any growth as due to demonetization temporarily and the demand for diesel for irrigation related activities is also falling due to good stock levels the oil imports will not see any growth.
Organization of the Petroleum Exporting Countries (OPEC), On November 2016, from January 2017 had decided to cut down total crude oil production by 1.2 million barrels per day. This will keep crude costs greater than $55per gun barrel in December16-March17 which was at $45/barrel for April-November2016. This improves in raw price boosts India’s crude import bill by $4billion in staying off this financial.
In the first quarter of FY17 CAD of India was $0.3 billion against $6.1 billion in Q1 FY16.
In the second quarter of FY17, the trade deficit of merchandises is falling. So the second quarter CAD will come out to $2.5-3-5 billion dollars which are more than 50% drop from $8.5 billion dollars of the second quarter of FY16.
As per ICRA, the CAD of the first half of the FY17 is going to be below $4billion.

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