The goldfever

There has been a steady rise in the value of illegally brought-in gold seized by the Indian Customs in recent years. From Rs.43.87 crore in 2011-12, the figure rose to Rs.104.62 crore in 2012-13, and further to Rs.686.99 crore in 2013-14. The figure is reported to have crossed the Rs.1,000-crore mark in 2014-15. The number of instances of such seizure, too, went up from 503 in 2011-12 to 2,450 in 2013-14 and 3,412 during April-January 2015. Gold imports nearly doubled in terms of volume from 471 tonnes in 2000-01 to 906.63 in 2014-15. The numbers reveal a compulsive appetite for the yellow metal and also the enormous challenges facing macro-planners. For policy formulators in India especially, it is proving a lot difficult to demystify the glitter of gold and deal with the issue effectively. Net gold import accounts for nearly a quarter of India’s trade deficit. Much of the advantage arising out of falling oil prices is nullified by the surge in gold imports. Compounding the misery, the global economic environment is also not helping the cause of Indian exports. External events and the unquenchable thirst for gold have all conspired to put the managers of the economy in a tight spot. Given the innate sensitivity of many Indians on the matter of gold and its hedging utility, the propensity to possess more and more of it may not melt away anytime soon.

Not surprisingly, every action on the gold import front — be it easing curbs or imposing restrictions — has oftentimes had wider effects on the ground, compounding the monetary and fiscal predicament. Controlling gold import and making it less attractive is the big challenge today, especially in the context of stabilising the external sector with many imponderables outside a nation’s control. Attempts to discourage imports by raising tariff walls and prescribing usage terms have only encouraged trade on the sly. What is required is a conscious effort to educate people on the larger public good that would follow if they voluntarily give up the craze. But this is easier said than done. Simultaneously, efforts should be made to provide alternative financial instruments that give people a sense of assurance and security. The new gold monetisation scheme is essentially aimed to woo the common person and help him or her to earn interest on gold lying idle. It is doubtful, however, if the procedures that are laid out will make anyone comfortable with parking gold with banks. Developing such trust will be a task for the longer term.