India's trade deficit narrowed in January, thanks to the country's strict import controls on gold imports. But analysts are warning that even though the figures are less alarming, now is not the time to let bullion back in.
The Reserve Bank of India (RBI) imposed tough rules on gold imports last year in an attempt to tackle the country's crippling current account deficit.
India was among many of the emerging markets that saw their currencies get battered when the U.S. Federal Reserve first floated the idea of tapering its quantitative easing program last summer.
The country's record current account deficit, which showed a $87.8 billion shortfall, in the previous fiscal year to March 2013, had caused the Indian currency's dramatic fall.
To correct the rupee's fall , and improve the country's balance of trade, RBI governor Raghuram Rajan imposed import controls on gold. And it looks as though it has worked: Figures from the Indian trade ministry on Tuesday showed that the trade deficit fell from $10.14 billion in December to $9.92 billion last month, helped by a 77 percent fall in gold and silver imports.
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Analysts are predicting that could ease the gold import restrictions after the positive trade data.
"India is a huge importer of gold. At a retail level, Indians love gold," Rajiv Biswas, senior director and Asia-Pacific chief economist at IHS Global, told CNBC in a TV interview.
"I think there are signs of progress with reducing the trade and current account deficits in India and knowing that it's very hard to restrict this demand indefinitely, they probably feel it's time to start easing back on the controls."
Biswas said however that the RBI would not completely ax the restrictions, but ease them slowly.