Imports made up 86% of India’s gold supply from 2016-2020, says WGC

India is virtually dependent on bullion imports to meet domestic gold demand because little mining and only a modest level of recycling is taking place in the country, according to a World Gold Council (WGC) report.

The report titled Bullion Trade in India, part of a series of in-depth analyses on India’s bullion market, says increasing import of gold doré — a semi-pure alloy of gold and silver — in the last few years has led to a massive expansion of gold refineries in the country.

Indian gold imports have continued to rise despite high import duties with official imports averaging 760 tonnes a year since the first hike in 2012. High duties have led to an increase in unofficial imports with eastern, north-eastern and southern states of the country acting as the chief conduit for gold smuggling. Gold smuggling has shifted to air and land routes from the sea, the report says.

In 2016-2020, imports made up 86 percent of India’s gold supply while recycling accounted for 13% and mining accounted for just 1 percent. Since the first duty hike in 2012, India has imported some 6,581 tonnes of gold.

A significant change that has taken place in India’s gold market is the growth in import of gold doré. In the last five years gold doré imports made up of 30 percent of total official gold imports, paving the way for the expansion of gold refining capacity in India. The number of refineries rose from three in 2012 to 32 in 2020.

Gold doré imports surge 

Currently, some 25-26 refineries are active, with a combined refining capacity of 1,200- 1,400 tonnes. Of these, 23 refineries imported doré in 2020 and the top five refineries accounted for more than 70 percent of India’s doré imports. With lower duty on gold doré, the share of gold doré imports has increased from 11 percent in 2014 to 29 percent in 2020.

In 2020, India imported 377 tonnes of gold bars and doré from over 30 countries; 55 percent of the imports came from just two countries – Switzerland (44 percent) and the United Arab Emirates (11 percent). As doré imports have grown, refineries have become far more prominent importers, achieving a 29 percent share of India’s official imports in 2020.

With bullion banks like Bank of Nova Scotia exiting their precious metals business and many large bullion dealers (previously clients of the banks) setting up their own refineries, banks’ share of official imports shrank from 40 percent in 2017 to 19 percent in 2020 as the business shifted to refineries.

About two-thirds of imported gold is in the form of 995 cast kilobars or 100 gm bars; 999 purity bars account for much of the remaining one-third of imports. Over the last few years, 100 gm bars have gained in popularity, with increased demand from small dealers or manufacturers, according to the report.

Gold officially shipped into India comes via air into 11 cities. In addition to these cities, gold is also imported in Sri City Free Trade and Warehousing Zone (FTWZ), located in the town of Satyavedu in Andhra Pradesh.

In 2020, 84 percent of imports came through airports located in north and south India, with the remaining 16 percent coming through airports in west and east India.

Challenges 

“Bullion industry has developed over the last three decades in India with significant addition to organised refining capacity. Challenges remain, however, on doré sourcing and organised trading which act as barriers to a more active role for banks and bullion trade in global trading and price setting. High taxes on bullion continue to be a strong incentive for the grey markets that constantly undermine all reforms to make gold liquid and mainstream,’’ said Somasundaram PR, regional CEO, India, of the World Gold Council.

According to WGC, bullion banking is one of the key pillars to address multiple challenges faced by India’s gold market, such as a lack of quality assurance, the unorganised state of the market and a lack of trust in international markets.

“There are significant opportunities to emerge as a global bullion trading hub through the international gold spot exchange (IIBX) with a thriving domestic bullion eco-system underpinned by globally recognised standards and infrastructure,’’ Somasundaram added.

In 2020, the average daily trading volumes on futures and spot exchanges was $69.3 billion, with gold exchange-traded funds (ETFs) generating average trading volumes of $3.3 billion. India’s contribution to these was just $1.2 billion and $3.4 million respectively.