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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (13418)	6/25/2015 9:33:56 AM
From: Goose94	Read Replies (1) \| Respond to of 202684

India Could Remove Gold Import Duties In the summer of 2013, India's currency tumbled as the Federal Reserve announced plans to wind up its quantitative easing measures. India was one of the five most vulnerable economies then (the other four being Turkey, Brazil, South Africa and Indonesia) that had high current account deficits and relied heavily on foreign investors. The excess liquidity caused by the Fed's ultra-loose monetary policy funded these deficits. But when the Fed announced plans to scale back its bond purchase program, much of this capital began flowing out, causing a sharp drop in currencies of almost all emerging markets. India was among the worst hit, with the Indian rupee falling from around 55 to almost 70 against the U.S. dollar. Two major reasons for India's high current account deficit were oil imports and gold imports. The Indian government was therefore forced to announce measures to curb gold imports. The gold import duty has remained in place even though the government of the time is no longer in power, and has been replaced by what is perceived to be a more market friendly government. The gold import duty certainly had an impact on gold demand last year. As I noted in my last article, gold demand in the first quarter picked up, as per data from the World Gold Council (WGC). Going forward as I pointed out, the monsoon season will decide how demand evolves. So far, the monsoon has been normal, which is positive for gold demand. Another positive could be lifting of gold import duty. A case for lifting import duty is building up though. Lower oil prices have helped India in bringing down its current account deficit to 0.2% of the GDP. Indeed, India is one of the few emerging markets that are seen as shielded from an interest rate hike. Much of the foreign capital that flew into India in the past one year was due to improving prospects for the Indian economy under the new government. However, it is not just foreign portfolio investment or hot money as it is called that has helped improve India's current account situation. India is also starting to see strong inflows of much needed foreign direct investment. Any emerging economy would prefer foreign direct investment over portfolio investment. According to a recent report in the Economic Times, foreign direct investment into India jumped 112% in April to $3.6 billion. On a month-on-month basis, the increase was 71%. The Economic Times noted that the FDI inflows for the month of April were the second highest in the last one-and-a-half years on an absolute basis. While India's government, which came into power a little over a year ago amid very high expectations, has introduced any big bang reforms, it has taken some small steps. Of course, a lot needs to be done yet as India still ranks a miserable 142 in the World Bank's ease of doing business ranking. But, even these small steps have helped boost sentiment. Speaking to the Economic Times, Amitabh Kant, Secretary at the Department of Industrial Policy and Promotion (DIPP), said that the April FDI number is very encouraging and that the DIPP is confident that the inflows will only go up in the coming few months as more measures are expected to improve business environment in the country. If that happens then the case for lifting gold import curbs will strengthen, especially if oil prices remain at current levels. Even if the import curbs remain in place, a normal monsoon has meant that Indian gold demand will pick up and likely meet the WGC's forecast of 900 tons to 1000 tons.