India is the world’s second-largest importer of gold after China.
India’s gold import bill was up 12% in 2015 reaching $35 billion. 2016 final numbers are expected to come in at about the same rate, although a sharp drop in demand during December — said to be due to Prime Minister Narendra Modi’s move to scrap 500- and 1,000-rupee banknotes as a “demonetization” crackdown on corruption and tax evasion — is said to have hit the largely cash-facilitated gold jewellery market hard in the short term.
Even so, Gold imports are a considerable burden on India’s balance of payments coming second only to oil in the demand it puts on India’s foreign exchange reserves. India imports 900 to 1,000 metric tons per year, but local gold output is just 2 to 3 mt per year. In the same way that the Indian government has encouraged onshore and offshore oil exploration, you would expect indigenous gold mining would be an industry the government actively encourages.
Although India has mines that go back more than 120 years, its annual gold production is miniscule. According to an article in the Hindu times that could be about to change. The Kolar gold field was forced to close in 2001 due to mounting losses at operator Bharat Gold. The state-owned company had been mining the Kolar reserves since independence in 1947 but the mines are deep — down to 3 kilometers — and Bharat was operating with outmoded technology and a large, unproductive legacy workforce. But Mineral Exploration Corp. estimates show reserves to be worth $1.17 billion in the mines, with another $880.28 million in gold-bearing deposits estimated to be left over in residual dumps from previous mining operations.
How Can India Mine More Domestic Gold?
It is debatable whether state-owned Bharat gold has the expertise to economically exploit such deep and relatively low-grade reserves, but established global miners such as Vedanta may hold more potential. In February 2016, the firm became the first private company to successfully bid for a gold mine in India — the Baghmara gold mine in Chhattisgarh — a mine with potential gold reserves of 2.7 mt of contained metal. Sure, that’s a fraction of Kolar’s 35-mt potential but a good start for a firm of Vedanta’s standing to start in India’s gold mining sector.
India is never likely to rival South Africa, Canada or Australia as a gold miner, but that’s not the point. Any contribution to the domestic market will lessen the impact gold imports have on the country’s balance of payments. With domestic reserves estimated at over 100 mt there appears to be scope, with the right state and government backing, for miners to reduce some of those imports and create domestic employment.