The politics of gold import appears as important as the economics of it. Finance Minister P. Chidambaram did worry a little about consumer demand for gold in his home State of Tamil Nadu, as also in other parts of the country, before he put heavy curbs on the import of the yellow metal to stabilise the rupee and Current Account Deficit.
Petitions from jewellers
Surely enough, the Finance Ministry is already getting petitions from jewellers’ associations and States that he should help relax gold imports for pure consumption ahead of Diwali. Some jeweller associations have suggested that the Ministry keep its curbs on fresh gold import but supply for consumption during the festival season from the RBI’s existing reserves of about 600 tonnes of yellow metal.
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A novel idea has come from the Tamil Nadu government, probably prompted by Chief Minister Jayalalithaa, who has promised poor women free gold mangalyam ( thali ) as part of her election promise.
A letter from T.N. government requests the Ministry to release gold from the 200 tonnes of yellow metal that India bought from the International Monetary Fund in 2009 when the dollar was volatile and gold was strengthening.
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What India purchased for $6.7 billion is worth nearly $10 billion now. The T.N. government has said gold released from this quota will not create dollar outflow and will not disrupt the rupee stabilisation process.
The Finance Minister will have to take a call on such demands coming ahead of the festival season even while fighting other larger battles of stabilising the balance of payments.