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  • India needs to start discouraging gold imports - Advisory body



    India’s top policy advisory body, the Prime Minister’s Economic Advisory Council headed by C Rangarajan, has urged government to discourage gold imports into the country and rather channel savings into formal financial instruments.
    The Council made the recommendation in its review of the economy that the government discourage gold purchases and instead provide incentives for investment in financial assets because gold accentuates the current account deficit and hence, import of the yellow metal is unsustainable.
    India imported 969 tonnes of gold in 2011, up from 958 tonnes in 2010. Since the country has one of the highest saving rates in the world - estimated at around 30% of total income, 10% of this is invested in gold. The government has been notified that it is important that the financial sector tap into this huge saving reserve, since many households with high levels of savings are looking for investment opportunities.
    The review, details of which are awaited, has major significance in India since the Finance Minister is set to present the Union Budget in early March. Any proposed budgetary measures will dampen gold imports and affect physical demand.
    Rising prices of the precious metal, over 60% in dollar terms in the last couple of years, has bloated the country’s import bill causing uneasiness among policy makers. The current account deficit is expected to be around $160 billion in the current year, with gold imports closer to $50 billion.
    ALARM BELLS
    Massive gold imports have rung alarm bells with Indian economists, investment bankers and analysts stating that India’s fascination with gold could be a reason why growth appears to be flagging. The gold import bill is expected to touch $100 billion by 2015-16, industry body Assocham (Associated Chambers of Commerce and Industry) has said. “Calculated on the basis of CAGR of period 2010-11 over 1999-2000, the gold import bill could total $100 billion soon. At these levels, gold imports are a huge burden on the balance of payments and accentuates the current account deficit,” said Assocham secretary general D S Rawat.
    In a report, the chamber has said extensive education campaigns should be undertaken - particularly in rural areas - to minimise propensity towards gold. Post offices, which have been hawking gold, should instead sell government guaranteed instruments to the rural population.
    Being the largest importer of gold in the world, India accounts for nearly one-third of the annual demand of the yellow metal. Terming the current gold import as a huge burden on the balance of payments, Assocham said India’s total gold imports during the past financial year has been higher than the gross domestic product of 12 states and exceeded the country’s estimated budgeted expenditure on fertilizer and food subsidies.


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