India's gold imports falling, but demand is still strong

The Indian government's efforts to curb gold imports may have succeeded: According to India's Economic Times, imports of the yellow metal will fall by 40% this year.

"Both the government and the Reserve Bank have taken a slew of measures to curb gold demand and the results are visible as imports till October have totalled about 400 tonnes," a revenue official told the Times. "Going by the trend, we expect another 100 tonnes to be imported in the five months through March 2014. So we will end the year at about 500 tonnes."

Gold imports are viewed as a major contributor to the country's current account deficit, second only to oil. Many blamed the precious metal when the Rupee hit a record low against the US dollar this past summer.

Finance Minister P. Chidambaram has introduced a series of measures aimed at reducing these purchases. He's raised import duties multiple times, restricted imports, banned credit card purchases of gold and imposed other limits on how the yellow metal can be purchased.

Consumer gold demand

Consumer gold demand | World Gold Council

The restrictions appear to be working. Imports in August fell 70% compared to July. A recent report by the World Gold Council shows that Indian demand dropped 32% over the past quarter. The same report shows that year-to-date consumer demand for gold is highest in China, beating out India by nearly 100 tonnes.

But official import numbers don't tell the whole story. It looks as though Indian consumers have found other ways of satisfying their appetite for gold. Illegal imports and metal recycling, according to the World Gold Council, have helped fill some of the drop in supply. When looked at year-to-date, which includes a strong second-quarter, India's consumer gold demand is actually on par with 2010 – a record year.