MUMBAI – Macquarie Research expects the “actual” current account deficit to be $6-8 bln higher than the official estimate for the financial year ending March if gold smuggling is taken into account, a report by the agency said.

The agency pegs the official current account gap at the end of the financial year at $40 bln or 2.2% of the gross domestic product as compared to 4.8% last year. Macquarie warns that the estimate has been ‘artificially depressed’ by the strict regulations on gold imports.

“Gold traded through unofficial channels is being used to meet the discretionary gold demand of Indian households. Our informal survey of 5-6 jewellers reveals that many local jewellers in India are offering 8-10% discounts on gold purchased in cash,” Macquarie said.

Gold smuggling in India has risen sharply since the second half of 2013 as the Reserve Bank of India imposed the 80:20 norm, which mandates that 20% of the imported gold and gold dore bars has to be made available for exports.

The agency said that after interactions with policymakers, they expect the 80:20 rule to see some relaxation and also expect a partial rollback of the record high import duty at 10%.

“Low real rates thanks to high inflation resulted in households shying away from financial savings–like bank deposits–toward gold, resulting in a high current account deficit and low deposit growth,” the report said. The agency expects the repo rate to “remain on hold” over the next six months.

In the next few years, Macquarie expects the annual gold demand to normalise to around 700-800 tn, which at the current market rate amounts to $28-$32 bln.

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