A surge in gold imports that widened India's trade deficit to a record last month and pushed the rupee to an all-time low was due to an error in calculation, according to people with knowledge of the matter.
Officials double-counted gold shipments in warehouses following a change in methodology in July, the people said, asking not to be identified ahead of an expected formal clarification. Attempts are on to reconcile the data, which could have been over-estimated by as much as 50 tons in November or almost 30% of total imports of the precious metal that month, some of the people said.
If an error is indeed identified, the trade figures are likely to be revised and traders could expect some correction in the foreign-exchange rate. It would also soothe feverish speculation about the state of the economy triggered by the data, as economists pondered over whether the surge in gold purchases signaled distress and a need to hedge against inflation or a move that indicated prosperity in the hinterland caused by a healthy crop.
"The rise in gold imports this November cannot be explained by festive demand alone, in our view, and represents a meaningful step up in gold purchases for reasons unclear (to us)," Nomura Holdings Inc. analysts Sonal Varma and Aurodeep Nandi had written in a note after the trade numbers were published.
India's trade deficit ballooned to an unprecedented $37.8 billion in November, driven by a four-fold increase in gold imports to a record $14.8 billion, from just $3.44 billion a year ago. While gold imports have risen steadily since the government cut duties on the precious metal to 6% from 15% in the July budget, the sharp spike had stumped analysts.
Even after adjusting for a 30% overestimation of gold, the November trade deficit would still stand at an elevated level of $33.4 billion, said Varma in an email Thursday. Before the trade data was released, economists had forecast a $23 billion gap for the month in a Bloomberg survey.
Notwithstanding the error in calculation, economists are worried about the surge in import of the precious metal. "Gold imports are growing at a faster pace this year on top of a higher base last year. That needs a much closer monitoring," said Gaurav Kapur, chief economist of IndusInd Bank Ltd. The declining goods exports exacerbates the problem for the country, he said.
The rupee continued to weaken against the dollar and tumbled to a fresh low of 85.07 after the US Federal Reserve announced another interest rate cut overnight, but dialed back expectations for further reductions next year, triggering losses across Asian currencies.
The Indian currency could weaken to 85.50 per dollar over the near term, weighed by uncertainty over tariff policies of the incoming Trump administration as well as a weakening Chinese yuan, said Kunal Sodhani, vice-president at Shinhan Bank.
According to people familiar with India's import system, officials probably added up imports kept by custodians in free trade zone warehouses with tallies reported by domestic banks that buy the gold from the custodians.
Typically, the gold isn't considered an import until it is checked out from the warehouse. However, a recent integration of customs clearing systems is being identified as the potential culprit.
Until the end of June, bills of entry for 'warehousing' and 'ex-bond goods' "- both not considered as imports "- were maintained by SEZ Online, a Department of Commerce system, while the bill of entry for 'house consumption' "- which is considered actual import "- was handled by the Indian Customs Electronic Commerce/Electronic Data Interchange, or ICEGATE. Since July, ICEGATE has integrated both custodian and consumption data in a common system for faster data dissemination.
Emails to ICEGATE Principal Director General Yogendra Garg and the Trade Ministry spokesman weren't immediately answered.
The double counting may have gone unnoticed earlier, but became apparent only in November because domestic prices went into a discount of at least 10% from international prices, triggering increased purchases that disproportionately pushed up import figures.
Overall imports of gold could still be within the 800-1,000 tons that India ships in annually, some of the people said, adding however that the final reconciliation hasn't yet been arrived at.
