Worried over the widening current account deficit (CAD), in a large measure owing to rising imports of gold, Finance Minister P. Chidambaram, on Wednesday, indicated that steps were under consideration to render its imports ‘a little more expensive’ to curb demand for the yellow metal.
Addressing a press conference here on the CAD situation and other issues, Mr. Chidambaram said: “…gold imports constituted a substantial chunk of the imports and is a huge drain on the Current Account…I would therefore appeal to the people to moderate the demand for gold which leads to large imports of gold. I may add that we may be left with no choice but to make it a little more expensive to import gold. This matter is under Government’s consideration.”
Mr. Chidambaram noted that CAD — representing the difference between exports and imports after considering cash remittances and payment — had risen to $38.7 billion or 4.6 per cent of the GDP (gross domestic product) during the first half of the current fiscal. Of this, a major contribution was by way of gold imports, amounting to $20.25 billion.
Citing figures, the Finance Minister went on to point out that as against the marginal accretion of $0.4 billion to the country’s forex reserves during April-September, the increase would have been many times more only if gold imports had been half the actual level. “Suppose gold imports had been one half of the actual level, that would have meant that our foreign exchange reserves would have increased by $10.5 billion,” he said
Mr. Chidambaram argued that the country “cannot afford to spend so much on importing gold. Nobody says gold within the country should not be used for whatever purpose. There is enough gold within the country. But import of gold is huge strain on the current account.”
During 2011-12, gold imports amounted to a foreign exchange spending of $56.2 billion and to curb the rising demand for the precious metal, the then Finance Minister, in his Budget for the current fiscal, had double the basic Customs duty on standard gold bars to 4 per cent from 2 per cent and on non-standard gold to 10 per cent. Even as certain other measures had to be moderated, the hike in duty did lead to some decline in imports.
Gold imports during the first six months of 2012-13 in value terms stood pegged at $20.2 billion, marking a decline of about 30.3 per cent over the like period a year ago. Thus, the decline can partly be attributed to increase in customs duty on gold imports by government in January and March, 2012.
However, Mr. Chidambaram did not buy the argument that increase in customs duty on gold did and could further lead to increased smuggling. “May be some smuggling has taken place but whatever level of duty, there is always smuggling.”
As for the major contributors to a widening CAD, Mr. Chidambaram said they were a decline in exports, which slipped by 7.4 per cent during the April-September this fiscal, coupled with a rise in imports by about 4.3 per cent during the six-month period.
However, the gap in export and import, he said, was partly made up “by an increase in services exports of 4.2 per cent and, consequently, surplus in services which amounted to $29.6 billion and remittances of $32.9 billion.”
What was particularly positive a worrying situation was that the widening CAD was financed without drawing on country's foreign exchange reserves, mainly because of adequate inflows of FDI ($12.8 billion) and FII ($1.7 billion). The net result is that “we have not drawn on the foreign exchange reserves and, in fact, there is a marginal accretion of $0.4 billion to the reserves,” he said.
“While the CAD is indeed worrying, I think it is within our capacity to finance the CAD, thanks to FDI, FII and ECB. I would like to once again underscore the crucial importance of FDI and FII. As I have said before, attracting foreign funds to India has become an economic imperative,” he said.
Keywords: gold imports, Finance Minister P. Chidambaram, UPA Government, fiscal deficit, gold prices, bullion markets
Who cares about the price of gold? We care only rise in price of
essential commodities. Only our netas are worried. They amass all sort
of wealth. Black money is the only reason for a spurt in price esp. in
gold, stocks and real estate.
It is cars that is what driving up Oil imports. Tell him to release for the last ten years of Oil imports & Gold imports. Common Man benefited out of Gold import.
His job is to keep the inflation under 5%, which he never has done. Shameless..
Time has shown that as value of Gold rises, more and more people are attracted to buy it. It is very simple and obvious fact, but this is not evident to our learned Finance Minister, who is hell bent upon making things worse for Gold Market. If government tries to curb inflation by following good policies then I think people will start trusting Rupee again. Alas, that's not going to happen anytime soon. So I think people are not going stop buying gold.
if the gold import is made costlier then we fall back to the old practice of gold smuggling that was got rid by liberal custom duty
The true problem is investor community is looking at gold as a hedge against inflation.
Therefore they are against the rupee. If FM takes a clue from what president Franklin
Roosevelt did in 1930s, India should fix the gold price for the next 10 years, so people see
more value in investing in the rupee instruments, stock market instead of gold. India already
has 18000 tonnes of gold while government treasury has only 500 tonnes, is there a case for
FM to restrict gold holding per person and purchase the rest, i mean if Indian treasury had
5000 tonnes of gold Rupee would be stronger directly relates to better price for Indian labour.
Think about it the other way, what if one of weak western european country with high fiscal
deficit and huge gold reserves sheds a few thousand tons of gold when the price has
reached 80 year high levels, all the hard earned investment of common indian goes down
the drain.
The Finance Minister has the privilege of imposing what appears to
suit the country's monetary situation.The people should be encouraged
to stop with purchase abroad of just one gold ring,and chain for
males and in addition a set of ear rings and necklace of particular
weight only for females.There are too many gold jewellery shops whose
business cannot be stopped and they have to be allowed for
import/export or import on the basis of previous years export.This
will arrest the unnecessary growth of a particular trade in Gold only
and introduce other types of jewellery,a welcome trend.Excess Gold
can be confiscated and exchanged for gold bold cheques prepaid and
split evenly into six to be withdrawn in six months.We have to do
something you Know!
Besides controlling Gold imports, RBI should put restrictions on
remittances for wasteful travel, fancy medical & education expenses.
In fact liberalised remittances in last few years ought to be
reviewed and conditions be put for remittance only for deserving
cases.
In India, Gold is not only considered as ornament but also as a
investment. Government's decision to curb the demand for the gold is
justifiable. Increase in gold prices will fetch more amount to the
investors who lend money by pledging gold. however, It badly affects the
gold merchant's business which accounts significant portion to the GDP.
The true problem is investor community is looking at gold has a hedge against inflation.
Therefore they are against the rupee. If FM takes a clue from what president Franklin
Roosevelt did in 1930s, India should fix the gold price for the next 10 years, so people see
more value in investing in the rupee instruments, stock market instead of gold. India already
has 18000 tonnes of gold while government treasury has only 500 tonnes, is there a case for
FM to restrict gold holding per person and confiscation, i mean if Indian treasury had 5000
tonnes of gold Rupee would be stronger directly relates to better price for Indian labour.
Think about it the other way, what if one of weak western european country with huge gold
reserves sheds a few thousand tons of gold when the price has reached 80 year high levels,
all the hard earned investment of common indian goes down the drain.
Without disturbing the domestic market, govt should order that Temples that are holding jewellery offered by devotees that are not used or that have not been used for ,say two years, must be recycled immediately making physical Gold available . They must immediately ban the sale of Gold coins by banks and Post offices and instead orient the customers to take equity route.Govt should also buy gold from volunteering Public at the present rates and issue them a certificate that can be encashed at rates on the date of surrendering the certificate.That way 'investment in Gold' sentiment will be met
one would have thought that socialist mandarins running this country since independance would have learnt that pursuing anti-market policies and creating artifical barriers in both supply and/or demand of ANYTHING is counterproductive.
Indians don't trust the rupee as a store of value. This is quite logical, as every currency in the history of man kind has been debased by governments and rulers to meet short term goals. thru inflation or printing, our modern "fake" currencies are no match for gold as a liquid store of value. Gold supply is limited by the annual production rate which is a is 2-3% of total global gold stocks.
By denying the common man this option, the government is simply going to drive up the value of whatever local stores of value (land). Land appreciation for instance is making Indian cities uncompetitive on the global stage, and one cannot buy a land parcel for small amounts.
Increase state level tax on unbranded jewellery would be better than
Excise Duty in acceptability terms.
Before doing this the govt. should take steps to give people other avenues for savings that would surpass inflation, It should also consider giving tax relief on FD interest to encourage savings
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