Since 2011, India and China have been locked in a contest to become the world’s biggest consumer of gold, a position that Asia’s third largest economy recovered recently.
For the three months ending September, India emerged as the biggest gold consumer in the world, buying 225.1 tonnes worth gold in jewelry, bars and coins. Chinese consumption, in comparison, slowed to 182.7 tonnes, partly due to crackdown by authorities on corruption.
In the meantime, global demand for the yellow metal declined by 2% to 929 tonnes from July to September—the lowest since 2009, according to the World Gold Council.
Worried about spiking gold consumption widening the country’s fiscal deficit, the Indian government is now planning to impose gold import restrictions again.
India’s trade deficit stood at $13.3 billion in October, as exports fell and gold imports surged, driven by purchases during an extended festive period.
India has always had a voracious appetite for gold, which came to seen as a safe investment during the financial crisis. Between 2009 and 2013, gold prices in the country more than doubled.
As India’s current account deficit—a measure of imports exceeding exports—ballooned last year, the then finance minister P. Chidambaram made public requests to Indians to stop buying gold, even as the government introduced import restrictions.
Those measures were relaxed in May 2014, and consumption has surged since.
But analysts point out that such restrictions don’t necessarily have an effect on gold buying in India.
There has been “no major impact on consumption,” said Aurobinda Prasad, chief research analyst at commodities brokerage Karvy Comtrade. ”If the (gold) prices fall, there is good amount of buying coming in.”
Some of that consumption may well be fed by an unusual increase in gold smuggling, which jumped by 330% between April and September 2014, compared to the same period last year.
The World Gold Council estimates that some 200 tonnes of gold will be illegally brought into India this year, about a quarter of India’s total consumption in 2013.