How does gold import impact a country's current account deficit?

When we talk about current account of the balance of payments, we are referring to import and export of goods/services, inflows and outflows of factor payments, etc. Current Account deficit occurs when the difference between imports (outflow of $) and exports (inflow of $) is positive (imports>exports). We have a deficit when we have more outflows than inflows of $. 

Coming to your question, gold forms an essential part of every Indian's investment portfolio and hence the rush for gold whenever prices fall/festivals roll by. It has to be imported because India produces negligible amount of the gold demanded. Imports create payables/outflows in $ and since India's exports are already lesser than imports, gold imports further widen the deficit. Moreover, gold is a non-essential item (unlike crude oil), therefore you may have noticed that the government has taken several measures in the past financial year, to reduce gold imports.


This has helped in narrowing the current account deficit.
Also, subsidies by the government and the fact that gold is imported by a retail entity and paid for in full by customers are not relevant to the CAD. It is simply the difference between outflows and inflows of dollars which are handled/accounted for centrally, by the RBI.

Hope this answers your question.

Just saw this: CAD dipped to 1.7% of GDP ($ 32.4 billion) in FY2014 from 4.7% ($ 87.8 billion) in FY2013, on the back of a clamp on gold imports and a moderate pick-up in exports.