Even as gold is being increasingly viewed as an investment haven rather than as a hedge against inflation, Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan, on Tuesday, projected a lower current account deficit (CAD) at 3.5 per cent of the GDP (gross domestic product) this fiscal following a declining trend in imports of the precious metal.
“We do expect CAD in the current year, that is 2012-13, to come down to something like 3.5 per cent from the high level of 4.2 per cent of GDP last year,” Dr. Rangarajan said here.
Encourage capital flows
While noting that capital flows should be encouraged in the short-term to bridge the current account gap, the PMEAC chief said that along with lower gold imports, he expected coal imports to come down as compared to the previous fiscal.
“I believe gold imports will come down this year...I think as inflation comes down and as the attraction for gold becomes less we should be able to import less gold…And also, if you increase the domestic production of coal, then the import of coal which we are doing on a large scale will also come down,” he said.
As per the trade data, India imported 1,067 tonnes of gold valued at $60 billion in 2011-12 and was the second largest commodity in the import bill after oil. During the current fiscal, gold imports in the April-June quarter show a 18.4 per cent contraction year-on-year and the import bill on this count stands at $ 13 billion (about Rs.71,912 crore).
However, with coal imports likely to go up to a massive 185 million tonnes according to a draft paper on energy by the Planning Commission, Dr. Rangarajan stressed the need to induce capital inflows.
As for the inflationary trend, the PMEAC chief felt that expectations of prices rising further would decline following improved rainfall. Alongside, however, Dr. Rangarajan admitted that the recent increase in the price of diesel would certainly fuel inflation in the short-term.