Adding Glitter to Paper Gold
In India, as in many other countries, the lure for gold is unmistakeable. The surge is partly explained by increased availability of gold and the growing realisation of its potential as an investment opportunity, especially in pessimistic times.
Burgeoning gold imports to meet the seemingly insatiable appetite for the precious metal by Indian consumers, though not new, have grown to such major dimensions recently that policy-makers are forced to take note. A check on gold imports by way of physical controls over imports or through fiscal measures to restrain consumption (such as through a special consumption tax) are impractical, and out of question. Policy-makers are, therefore, forced to look at ways of harnessing this phenomenon — of unbridled gold imports and consumption — in ways that will benefit the economy while moderating its demand internally.
There are at least two important macro-economic dimensions to this phenomenon of ever-rising gold imports even in the face of record gold prices.
One, the immediate impact is on the external economy as gold and energy imports contribute to a widening of the trade deficit, and, hence, the current account deficit, which was at a record high of 4.2 per cent on March 31. According to the World Gold Council, for April-June 2012, gold imports stood at 181.3 tonnes.
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In India, as in many other countries, the lure for gold is unmistakeable. The surge is partly explained by increased availability of gold and the growing realisation of its potential as an investment opportunity, especially in pessimistic times.
Burgeoning gold imports to meet the seemingly insatiable appetite for the precious metal by Indian consumers, though not new, have grown to such major dimensions recently that policy-makers are forced to take note. A check on gold imports by way of physical controls over imports or through fiscal measures to restrain consumption (such as through a special consumption tax) are impractical, and out of question. Policy-makers are, therefore, forced to look at ways of harnessing this phenomenon — of unbridled gold imports and consumption — in ways that will benefit the economy while moderating its demand internally.
There are at least two important macro-economic dimensions to this phenomenon of ever-rising gold imports even in the face of record gold prices.
One, the immediate impact is on the external economy as gold and energy imports contribute to a widening of the trade deficit, and, hence, the current account deficit, which was at a record high of 4.2 per cent on March 31. According to the World Gold Council, for April-June 2012, gold imports stood at 181.3 tonnes.
Read Full Article>>>