Facebook Pixel Code

Editorial: Golden opportunity

Right time to reduce curbs on gold imports

Though UPA chairperson Sonia Gandhi has asked the commerce minister to look into the various import curbs on gold?this was based on a petition by the gems and jewelry industry?it is not clear this will be done since the finance minister?s view is that it is premature to assume the current account deficit is under control. While the finance minister may wish to hold on to the higher duties and import curbs, it is worth keeping in mind that gold imports have been falling steadily for the last two quarters?from $16.5 billion in the June 2013 quarter to $3.9 billion in the September quarter and $3 billion in the December quarter?precisely because gold prices have been coming off with the US, and global, economic recovery.

In the last 12 months, gold prices have come off 3% while in the previous 12 months from January 2012 to January 2013, prices rose just under 12%. In other words, chances are gold demand is unlikely to pick up in a significant way if the global economy continues to gather strength. Indeed, despite the sharp hike in gold import duties?from R300 per 10 grams before January 2012 to 8% in June 2013?gold imports rose to 338 tonnes in the June 2013 quarter precisely because global growth looked uncertain, as did the likely impact of the US taper. With both looking distinctly better, imports plunged in the September and December quarter. Also, if the CAD is likely to be under $50 billion, the economy is in a position to be able to absorb a hike in gold imports should this take place. Indeed, the bigger danger to the CAD, when Indian growth begins to pick up, is from increased imports of both coal and steel scrap, necessitating action on opening up coal mining to the private sector as well as moving the courts to lift various bans on iron ore mining.

Also, going by the number of news reports of smugglers being caught, this suggests gold smuggling is on the rise, fuelled by the 10% import duty. Since this needs to be funded, chances are this will get reflected in lower NRI remittances?either way, the impact on the balance of payments and the rupee will be the same. Ideally, the finance minister should lower import duties, to 8% perhaps, and test the waters?artificial curbs on imports also ensure policy makers have no real idea of how weak or strong the CAD is.

Get live Share Market updates, Stock Market Quotes, and the latest India News and business news on Financial Express. Download the Financial Express App for the latest finance news.

First published on: 25-01-2014 at 03:12 IST
Market Data
Market Data
Today’s Most Popular Stories ×