Gold imports unsustainable, encourage formal financial instruments: ASSOCHAM

Gold imports unsustainable, encourage formal financial instruments: ASSOCHAM

eindiadiary.com bureau

New Delhi: India’s gold imports are unsustainable and the government should encourage channelising savings in formal financial instruments to increase productive capacity of the economy, trade body ASSOCHAM said today.

Post offices – especially in rural areas – should be used to sell such government guaranteed instruments to extend their reach throughout the country, it said. Being the largest importer of gold in the world, India accounts for nearly one-third of the annual demand with import bill rising from 4.1 billion dollars in 2001-02 to 33.8 billion dollars in 2010-11.

At these levels, gold imports are a huge burden on the balance of payments and accentuates the current account deficit. On the other hand, it represents a massive strain on investable resources and weaning away domestic savings from gold assume importance, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM) in a study titled ‘India’s Gold Rush – Its Impact and Sustainability.’

The total import value of gold during last financial year was higher than the gross state domestic product of 12 states and budgeted estimated expenditure on fertiliser and food subsidy.

“Equally astounding is the fact that India imported more gold than the annual budgeted estimated expenditure outlay on water supply urban development and sanitation,” said ASSOCHAM secretary general D.S. Rawat.

India’s gold demand is ironically 37.6 per cent more than China’s although China’s GDP is 3.5 times of India’s GDP. Compared with the United States which has a 14 trillion dollar economy – ten times the size of Indian economy – India’s gold demand is almost five times.

The ASSOCHAM study said gold as a commodity does not add much to the productive capacity of an economy. Moreover, foreign exchange reserves used to import gold can be used to get other commodities. According to the Reserve Bank of India’s review of macro-economic situation, the current account deficit is a cause of concern because of inelastic gold and oil demand.

With the government increasing import and excise duties on gold and silver, both commodities are set to cost more. The new rates on ad valorem basis – two per cent on 10 grammes of gold and six per cent on one kilogramme of silver – mean that importers will have to pay double the duty.

Calculated on the basis of compound annual growth rate of period 2010-11 over 1999-2000, the gold import bill could total 100 billion dollars by 2015-16. India has one of the highest savings rate in the world to the tune of 30 per cent but lags behind major economies in terms of key economic indicators.

ASSOCHAM said efforts must be made to introduce more financial saving instruments and extensive education campaigns should be undertaken – particularly in rural areas – to minimise propensity towards gold.

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