A nearly 90 percent annual jump in gold and silver imports saw the trade deficit rise to $20.14 billion last month from $17.8 billion in April.

The rise in gold import growth was slower than an annual 138 percent surge in April.

A combination of sliding global prices and regional festivals in India that traditionally increase demand for gold as gifts prompted frenzied buying in April and May. A similar pattern was seen in the world’s other major bullion buyer, China.

This robust retail demand has become a major headache for Indian policymakers who have announced a slew of measures to try to narrow the current account deficit, which hit an all-time high of 6.7 percent of gross domestic product (GDP) in the December quarter.

India, the world’s biggest buyer of the metal, hiked the import duty on gold to 8 percent earlier in the month from 6 percent. The central bank has also sought to curb gold imports by banks and non-banks.

“We expect gold demand and, hence, imports to be significantly lower in June, and possibly remain low in coming months,” Barclays Capital said in a note after Monday’s data.

“The widening in May might mark a near-term high for the trade deficit, and we think it could narrow significantly in June.”

India has been struggling to control its current account deficit, which has exacerbated the fall of the rupee against the dollar in the recent global sell-off in emerging currencies.

The sharp depreciation in the rupee has also not helped Indian exports of value-added goods such as jewellery and pharmaceutical drugs.

Merchandise exports fell 1.1 percent from a year earlier to $24.51 billion, the first annual fall in five months, Monday’s trade ministry data showed.

The sector makes up about 15 percent of the India’s economy, which grew at its weakest pace in a decade in the fiscal year that ended in March.

Annual imports, meanwhile, rose about 7 percent in May to $44.65 billion, the trade ministry said.

The Reserve Bank of India left interest rates steady on Monday, warning of upside risks to inflation due to the weaker rupee and stressing the need to reduce the country’s bloated current account gap to a sustainable level. (Writing by Rajesh Kumar Singh and Manoj Kumar, additional reporting by Anurag Kotoky; Editing by Ross Colvin & Kim Coghill)

A nearly 90 percent annual jump in gold and silver imports
saw the trade deficit rise to $20.14 billion last
month from $17.8 billion in April.

The rise in gold import growth was slower than an annual 138
percent surge in April.

A combination of sliding global prices and regional
festivals in India that traditionally increase demand for gold
as gifts prompted frenzied buying in April and May. A similar
pattern was seen in the world’s other major bullion buyer,
China.

This robust retail demand has become a major headache for
Indian policymakers who have announced a slew of measures to try
to narrow the current account deficit, which hit an all-time
high of 6.7 percent of gross domestic product (GDP) in the
December quarter.

India, the world’s biggest buyer of the metal, hiked the
import duty on gold to 8 percent earlier in the month from 6
percent. The central bank has also sought to curb gold imports
by banks and non-banks.

“We expect gold demand and, hence, imports to be
significantly lower in June, and possibly remain low in coming
months,” Barclays Capital said in a note after Monday’s data.

“The widening in May might mark a near-term high for the
trade deficit, and we think it could narrow significantly in
June.”

India has been struggling to control its current account
deficit, which has exacerbated the fall of the rupee against the
dollar in the recent global sell-off in emerging currencies.

The sharp depreciation in the rupee has also not helped
Indian exports of value-added goods such as jewellery and
pharmaceutical drugs.

Merchandise exports fell 1.1 percent from a year earlier to
$24.51 billion, the first annual fall in five months, Monday’s
trade ministry data showed.

The sector makes up about 15 percent of the India’s economy,
which grew at its weakest pace in a decade in the fiscal year
that ended in March.

Annual imports, meanwhile, rose about 7 percent
in May to $44.65 billion, the trade ministry said.

The Reserve Bank of India left interest rates steady on
Monday, warning of upside risks to inflation due to the weaker
rupee and stressing the need to reduce the country’s bloated
current account gap to a sustainable level.

(Writing by Rajesh Kumar Singh and Manoj Kumar, additional
reporting by Anurag Kotoky; Editing by Ross Colvin & Kim
Coghill)

India’s consumer inflation likely eased to 9.05 percent in May from 9.39 percent in April, a Reuters’ poll of economists showed.

Reserve Bank of India (RBI) Governor Duvvuri Subbarao said recently there were upside risks to retail inflation, comments which markets interpreted as lessening the chance of a fourth straight rate cut at the bank’s policy meeting on Monday.

“Retail inflation, as measured by consumer price index is still high,” Subbarao said on May 30.

Policymakers are also worried that a sharp downward trend in the rupee, which hit a record low of 58.98 to the U.S. dollar on Tuesday, could lead to rise in prices of imported items such as edible oil and build up inflationary expectations in the economy.

“The RBI has always had to consider a large number of factors in deciding its policy. It doesn’t look at one number to decide policy. Obviously, the exchange rate will be an input,” the finance ministry’s chief economic adviser Raghuram Rajan said on Tuesday.

NEW DATA, OLD PROBLEMS

The focus on consumer prices is new for India. Until recently, the wholesale price index was the only game in town for policymakers, because of inadequate data collection from rural areas. The government began to release comprehensive CPI inflation data only last year.

CPI data for May is due on Wednesday around 1:30 a.m. ET. The government will also report industrial output data for April at the same time. A Reuters poll predicted a very minor uptick in the sector to 2.4 percent growth. IDmnL3N0EJ1O3

Wholesale inflation eased to 4.89 percent in April, the lowest level in three years, but the drop is not being felt by consumers – retail inflation has remained close to or above double-digits for more than a year.

That is the highest among the BRICS group of economies including Brazil, Russia, China and South Africa.

“I would predict inflation (CPI) between 8.5 and 9 percent in the next couple of months,” said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy.

He noted the weak rupee could push up inflation expectations in spite of hopes that food prices will soften as a result of monsoon rains.

The RBI now says it will increasingly monitor prices at a retail level, partly because the wide gap has made the consumer index difficult to ignore. The bank is expected to one day make the consumer index its main gauge, like most other countries.

Prime Minister Manmohan Singh’s government has lost its majority in parliament and is limping towards elections due within a year. It is worried rising food prices will dampen efforts to win back voters.

The central bank cut the interest rate last month for the third time since January to 7.25 percent but said there was little room for further policy easing.

The government faces an uphill task to revive economic growth, which expanded at a decade low of 5 percent in 2012/13 fiscal year ending March, hit by slowing investments, a widening current account deficit and the falling rupee.

Since September, it has taken steps to open up more sectors such as retail for foreign investors, and approved more infrastructure projects in a bid to spur growth and avoid a threatened credit downgrade to its sovereign debt.

On Tuesday, Rajan said the finance ministry will recommend to the cabinet that limits on foreign investment be raised in a number of industries.

WIDENING GAP

Economists said CPI inflation is unlikely to decline soon because of the high weighting of food items in the index. Food items make up nearly 50 percent of the CPI index, compared with just 14.3 percent in the WPI index.

“CPI is unlikely to fall below 7 percent for the next few months, and that is a very high level, considering the rise of prices of commodities like milk in the CPI index,” said a senior economist at the ministry of finance, who declined to be identified because of the sensitivity of the issue.

He said food prices could ease marginally with a normal rainfall and an improvement of cereal supplies in the market.

Prices of food items like eggs, fish, meat and cereals have gone up by nearly 15 percent over the last one year, hitting poor households, which are crucial for the Congress party to win back power in Asia’s third-largest economy.

The government wants to push through legislation to create a massive food welfare program that would give cheaper grain to about two-thirds of 1.2 billion population.

(Additional reporting by Neha Dasgupta and Subhadip Sicar in MUMBAI; Annie Bannerji in NEW DELHI; Editing by Kim Coghill)

Consumer inflation likely eased to 9.05 percent in May from 9.39 percent in April, a Reuters’ poll of economists showed.

Reserve Bank of India (RBI) Governor Duvvuri Subbarao said recently there were upside risks to retail inflation, comments which markets interpreted as lessening the chance of a fourth straight rate cut at the bank’s policy meeting on Monday.

“Retail inflation, as measured by consumer price index is still high,” Subbarao said on May 30.

Policymakers are also worried that a sharp downward trend in the rupee, which hit a record low of 58.98 to the U.S. dollar on Tuesday, could lead to rise in prices of imported items such as edible oil and build up inflationary expectations in the economy.

“The RBI has always had to consider a large number of factors in deciding its policy. It doesn’t look at one number to decide policy. Obviously, the exchange rate will be an input,” the finance ministry’s chief economic adviser Raghuram Rajan said on Tuesday.

NEW DATA, OLD PROBLEMS

The focus on consumer prices is new for India. Until recently, the wholesale price index was the only game in town for policymakers, because of inadequate data collection from rural areas. The government began to release comprehensive CPI inflation data only last year.

CPI data for May is due on Wednesday around 11 a.m. The government will also report industrial output data for April at the same time. A Reuters poll predicted a very minor uptick in the sector to 2.4 percent growth.

Wholesale inflation eased to 4.89 percent in April, the lowest level in three years, but the drop is not being felt by consumers – retail inflation has remained close to or above double-digits for more than a year.

That is the highest among the BRICS group of economies including Brazil, Russia, China and South Africa.

“I would predict inflation (CPI) between 8.5 and 9 percent in the next couple of months,” said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy.

He noted the weak rupee could push up inflation expectations in spite of hopes that food prices will soften as a result of monsoon rains.

The RBI now says it will increasingly monitor prices at a retail level, partly because the wide gap has made the consumer index difficult to ignore. The bank is expected to one day make the consumer index its main gauge, like most other countries.

Prime Minister Manmohan Singh’s government has lost its majority in parliament and is limping towards elections due within a year. It is worried rising food prices will dampen efforts to win back voters.

The RBI cut the interest rate last month for the third time since January to 7.25 percent but said there was little room for further policy easing.

The government faces an uphill task to revive economic growth, which expanded at a decade low of 5 percent in 2012/13 fiscal year ending March, hit by slowing investments, a widening current account deficit and the falling rupee.

Since September, it has taken steps to open up more sectors such as retail for foreign investors, and approved more infrastructure projects in a bid to spur growth and avoid a threatened credit downgrade to its sovereign debt.

On Tuesday, Rajan said the finance ministry will recommend to the cabinet that limits on foreign investment be raised in a number of industries.

WIDENING GAP

Economists said CPI inflation is unlikely to decline soon because of the high weighting of food items in the index. Food items make up nearly 50 percent of the CPI index, compared with just 14.3 percent in the WPI index.

“CPI is unlikely to fall below 7 percent for the next few months, and that is a very high level, considering the rise of prices of commodities like milk in the CPI index,” said a senior economist at the ministry of finance, who declined to be identified because of the sensitivity of the issue.

He said food prices could ease marginally with a normal rainfall and an improvement of cereal supplies in the market.

Prices of food items like eggs, fish, meat and cereals have gone up by nearly 15 percent over the last one year, hitting poor households, which are crucial for the Congress party to win back power in Asia’s third-largest economy.

The government wants to push through legislation to create a massive food welfare programme that would give cheaper grain to about two-thirds of 1.2 billion population. (Additional reporting by Neha Dasgupta and Subhadip Sicar in MUMBAI; Annie Bannerji in NEW DELHI; Editing by Kim Coghill)

Two senior ministry officials, who declined to be named,
said the aim was to attract more capital flows from wealth funds
in Middle East countries. Finance Minister P Chidambaram has
visited the Middle East in recent months to drum up investment.

“We will again meet and it will take some more time to
finalize measures on sovereign funds,” said one official who
attended the meeting.

India’s rupee hit a record low of 57.76 against the dollar
on Monday, escalating worries about the country’s current
account deficit and complicating the task of the central bank as
it tries to loosen monetary conditions to spur an economic
recovery.

The meeting on Monday was arranged prior to the record being
hit.

Another senior official at the ministry said the government
was taking all possible steps to “calm” markets and was
committed to reining in the current account deficit.

He said government plans to raise the cap on investment by
foreign institutional investors (FII) by five billion dollars in
government debt has been put on hold, because money was
currently flowing out of India.

“The FII capital outflows are likely to continue for next
10-15 days,” he said adding he feared the rupee could touch 58
or 59 against the dollar if the outflows continued.

He blamed the outflows on investor perceptions that the
United States is preparing to tighten monetary policy through a
rollback of its quantitative easing programme.

He said the government expects the situation to stabilize in
the next couple of weeks and that measures including a hike to 8
percent in gold import duty from 6 percent would help reduce
pressure on the current account deficit.

“We expect gold imports will come down following RBI
restrictions and hike in import duty,” said the official, who
has been involved in recent government strategies to curb gold
imports.

He said the government could consider more fiscal measures to
cut gold imports if imports do not fall to the desired level. He
declined to say what was the desired level of gold imports.

(Reporting bu Manoj Kumar; Writing by Frank Jack Daniel;
Editing by Sanjeev Miglani)

The increase was announced a day after the central bank
acted to force domestic jewellers to buy only on a cash basis
and is expected to slash imports, which had hit 162 tonnes in
May, twice the monthly average of 2011 when they reached a
record.

“The import duty on gold has been raised to 8 percent,” D.
S. Malik, spokesman at the finance ministry, said. A formal
notification was issued later.

A combination of sliding global prices and regional
festivals that traditionally call for gold as gifts prompted
frenzied buying in April and May, mirrored in the world’s other
major bullion buyer, China.

The price fall wiped out the impact of the government’s
January increase in import duty to 6 percent and the central
bank’s move in mid-May to make buying on credit more difficult.

But after a meeting on Monday between the government,
central bank and financial market regulators, Finance Minister
P. Chidambaram said imports must be checked again.

“In June-July we will see a sharp drop in imports. In April
and May we imported around 300 tonnes. In June and July imports
would be around 90 tonnes,” said Prithviraj Kothari, director
with RiddiSiddhi Bullions Ltd, a wholesaler in Mumbai.

The actively traded gold for June delivery on
India’s Multi Commodity Exchange (MCX) was 1.83 percent higher
at 27,500 rupees per 10 gram as buyers scrambled to make
purchases before the duty comes into effect on June 6.

The reaction in spot gold was muted, with traders
saying the potential for lower imports to India was already
reflected in the price, which fell nearly 1 percent on Tuesday
after the Reserve Bank of India extended import restrictions,
already applied to banks, to all nominated agencies and trading
houses.

Gold is the second most expensive import for the country
after crude oil. The government also worries that large amounts
of savings locked up in gold curtail liquidity and therefore
investment in infrastructure and other drivers of the economy.

“This continues to demonstrate that the Indian government is
determined to reduce gold imports into India. Clearly they’d
like to stimulate the local market and get people mobilising
reserves within India as opposed to importing them,” a London
trader said.

India has for centuries relied on gold for savings, dowries
and as a display of wealth. As banks have made few inroads into
rural areas and consumer inflation is high, it remains the
investment of choice for many.

Some warned that the duty increase would simply encourage
smuggling, something Chidambaran has also warned about.

“This is not going to help reduce import but smuggling will
increase … From the last few months all the wrong decisons are
being taken by the government to tackle gold imports,” Mohit
Kamboj, president of the Bombay Bullion Association, said in a
statement.

(Additional reporting by Siddesh Mayenkar in MUMBAI and Jan
Harvey in LONDON; Writing by Jo Winterbottom; Editing by Anthony
Barker)

The rupee fell 4.8 percent in May and was the worst performing Asian currency.

A weak rupee will push up India’s import bill, which could fuel inflation and worsen a current account deficit that was equivalent to a record 6.7 percent of gross domestic product in December.

“The file has been sent to the finance minister for signing, and once it comes back, the decision could be announced any time,” one of the two finance ministry officials told Reuters. The officials declined to be named as they were not authorised to speak to media.

The government is worried that the strengthening dollar and investor risk aversion could lead to capital outflows, making it tougher to fund the current account deficit. Finance Minister P. Chidambaram reckons that funding the deficit will require at least $75 billion in foreign inflows.

India currently allows foreign institutional investors (FIIs) to purchase a total of up to $25 billion in government debt and $51 billion in corporate bonds.

A weakening rupee has raised concerns over funding of the huge current account deficit, prompting foreign investors to sell over $750 million in debt in the three sessions to Friday.

As on June 3, nearly 76 percent of the total foreign investment limit in government bonds had been taken up, according to the data compiled by the National Securities Depository Ltd.

India’s failure to attract sufficient capital inflows had precipitated a balance of payment crisis in 1991, when the central bank was forced to airlift 47 tonnes of gold to Europe as collateral for a loan to avert a sovereign default.

Perhaps aware of the economy’s vulnerability, Finance Minister P. Chidambaram has been courting foreign investors on his roadshows in Asia, Europe and North America.

To attract higher inflows, Chidambaram cut tax rates in April cfor foreign investors on interest income from investments in government and corporate debt.

The officials said the government was also planning to allow FIIs to invest in government bonds on “first-come-first-serve” basis, replacing the current system of auction.

It is also considering a proposal to relax due diligence rules, also known as “Know Your Customer”, for foreign portfolio investors, they said. (Reporting by Manoj Kumar and Rajesh Kumar Singh; Editing by Ross Colvin & Kim Coghill)

The rupee fell 4.8 percent in May and was the worst
performing Asian currency.

A weak rupee will push up India’s import bill, which could
fuel inflation and worsen a current account deficit that was
equivalent to a record 6.7 percent of gross domestic product in
December.

“The file has been sent to the finance minister for signing,
and once it comes back, the decision could be announced any
time,” one of the two finance ministry officials told Reuters.
The officials declined to be named as they were not authorised
to speak to media.

The government is worried that the strengthening dollar and
investor risk aversion could lead to capital outflows, making it
tougher to fund the current account deficit. Finance Minister P.
Chidambaram reckons that funding the deficit will require at
least $75 billion in foreign inflows.

India currently allows foreign institutional investors
(FIIs) to purchase a total of up to $25 billion in government
debt and $51 billion in corporate bonds.

A weakening rupee has raised concerns over funding of the
huge current account deficit, prompting foreign investors to
sell over $750 million in debt in the three sessions to Friday.

As on June 3, nearly 76 percent of the total foreign
investment limit in government bonds had been taken up,
according to the data compiled by the National Securities
Depository Ltd.

India’s failure to attract sufficient capital inflows had
precipitated a balance of payment crisis in 1991, when the
central bank was forced to airlift 47 tonnes of gold to Europe
as collateral for a loan to avert a sovereign default.

Perhaps aware of the economy’s vulnerability, Finance
Minister P. Chidambaram has been courting foreign investors on
his roadshows in Asia, Europe and North America.

To attract higher inflows, Chidambaram cut tax rates in
April cfor foreign investors on interest income from investments
in government and corporate debt.

The officials said the government was also planning to allow
FIIs to invest in government bonds on “first-come-first-serve”
basis, replacing the current system of auction.

It is also considering a proposal to relax due diligence
rules, also known as “Know Your Customer”, for foreign portfolio
investors, they said.

(Reporting by Manoj Kumar and Rajesh Kumar Singh; Editing by
Ross Colvin & Kim Coghill)

The figure is sharply higher than April, even though it is below an estimate of 262 tonnes earlier in the day from Finance Minister P. Chidambaram which had stunned experts, including the World Gold Council and the Bombay Bullion Association.

“The correct figure for May gold import is around 162 tonnes, and not 262 tonnes,” D.S. Malik, spokesman of the ministry of finance, told Reuters.

Indians have continued a buying spree that started in April, as consumers took advantage of a slide in global prices which coincided with regional festivals when gold is bought for gifts.

April’s imports were 142.5 tonnes, according to an official in the customs department at the ministry of finance, who handles gold data. In value terms, April imports shot up 138 percent from a year earlier to $7.5 billion, including small amounts of silver.

CURBS NEEDED?

With May imports soaring even higher, the government is under pressure to look at more measures to rein them in. Such hefty imports threaten to widen a current account gap which already hit a record 6.7 percent of GDP in the December quarter.

“Necessarily, we will have to check (gold imports),” Chidambaram said, after quoting the incorrect import figure.

India hiked gold import duty by half to 6 percent in January and the central bank has also stepped in to restrict purchases. The measures helped reduce first quarter imports to 215 tonnes from 228 tonnes a year earlier, according to figures from the World Gold Council.

But since then, domestic prices have dropped sharply, tracking global trends, and undermined further by a stronger rupee. Gold futures on Mumbai’s Multi Commodity Exchange hit a year low of 25,720 rupees per 10 grams on April 16.

They were trading around 27,110 rupees on Monday – roughly equivalent to $1,351 per ounce – as global spot gold prices were quoted around $1,403 per ounce. <GOL/>

The government is cautious about raising import duty further because it is concerned that this could encourage smuggling.

A finance ministry official said on Monday the Reserve Bank of India could consider banning all purchases by jewellers on a deposit basis with full payment on delivery. On May 13, the central bank banned such purchases from banks.

The WGC forecasts imports of about 615 tonnes in the first half of 2013 – implying June imports would have to retreat to more normal levels of about 80 tonnes. It expects second half demand to match 2012′s 485 tonnes – putting it on track for a record year.

But some in the industry remain sceptical that Indian consumers will have bought so much in May.

“After Akshaya Tritiya (festival on May 13), demand was not there. Across India consumers were not into the market as there was a lot of volatility,” said Haresh Soni, chairman of All India Gems and Jewellery Trade Federation.

“From the market point of view, we are not expecting May figures should be more than April,” he added. (Additional reporting by Siddesh Mayenkar in MUMBAI; Writing by Jo Winterbottom; Editing by Anthony Barker and William Hardy)

The figure is sharply higher than April, even though it is below an estimate of 262 tonnes earlier in the day from Finance Minister P. Chidambaram which had stunned experts, including the World Gold Council and the Bombay Bullion Association.

“The correct figure for May gold import is around 162 tonnes, and not 262 tonnes,” D.S. Malik, spokesman of the ministry of finance, told Reuters.

Indians have continued a buying spree that started in April, as consumers took advantage of a slide in global prices which coincided with regional festivals when gold is bought for gifts.

April’s imports were 142.5 tonnes, according to an official in the customs department at the ministry of finance, who handles gold data. In value terms, April imports shot up 138 percent from a year earlier to $7.5 billion, including small amounts of silver.

CURBS NEEDED?

With May imports soaring even higher, the government is under pressure to look at more measures to rein them in. Such hefty imports threaten to widen a current account gap which already hit a record 6.7 percent of GDP in the December quarter.

“Necessarily, we will have to check (gold imports),” Chidambaram said, after quoting the incorrect import figure.

India hiked gold import duty by half to 6 percent in January and the central bank has also stepped in to restrict purchases. The measures helped reduce first quarter imports to 215 tonnes from 228 tonnes a year earlier, according to figures from the World Gold Council.

But since then, domestic prices have dropped sharply, tracking global trends, and undermined further by a stronger rupee. Gold futures on Mumbai’s Multi Commodity Exchange hit a year low of 25,720 rupees per 10 grams on April 16.

They were trading around 27,110 rupees on Monday – roughly equivalent to $1,351 per ounce – as global spot gold prices were quoted around $1,403 per ounce.

The government is cautious about raising import duty further because it is concerned that this could encourage smuggling.

Chidambaram said on Monday the Reserve Bank of India could consider banning all purchases by jewellers on a deposit basis with full payment on delivery. On May 13, the central bank banned such purchases from banks.

The WGC forecasts imports of about 615 tonnes in the first half of 2013 – implying June imports would have to retreat to more normal levels of about 80 tonnes. It expects second half demand to match 2012′s 485 tonnes – putting it on track for a record year.

But some in the industry remain sceptical that Indian consumers will have bought so much in May.

“After Akshaya Tritiya (festival on May 13), demand was not there. Across India consumers were not into the market as there was a lot of volatility,” said Haresh Soni, chairman of All India Gems and Jewellery Trade Federation.

“From the market point of view, we are not expecting May figures should be more than April,” he added.

(Additional reporting by Siddesh Mayenkar in MUMBAI; Writing by Jo Winterbottom; Editing by Anthony Barker and William Hardy)