India, the world’s largest bullion buyer, should mobilise idle gold lying with its citizens to curb imports and lower a record current-account deficit, according to the All India Gems & Jewellery Trade Federation.
Households and temples carry about 25,000 tonnes and a successful plan to gather at least 10 per cent of the gold reserves for lending to jewelers will ensure supplies for three years, Bachhraj Bamalwa, chairman of the federation, which represents about 300,000 jewellers, said in a phone interview. The plan should be run by the central bank, which can help India halt imports for three years, he said.
India is grappling with the highest ever current-account deficit, the broadest measure of trade, mainly because of its gold and crude oil imports, weakening the rupee to a record against the US dollar. The central bank is mulling a gold investment plan to curb the deficit, Deputy Governor Subir Gokarn said last month. Imports climbed to a record 969 tonnes last year, according to the World Gold Council.
“The only way India can reduce its dependence on imports is to tap the gold lying with individuals and temples,” Kishore Narne, head of commodity and currency at Motilal Oswal Commodity Broker Pvt., said in a phone interview. “By doing this, the country can reduce influx of gold at these high prices. Appetite for gold is never going to diminish.”
Investment demand
Imports more than doubled in three years through 2011 as the economy grew an average 7.8 per cent in the past decade, boosting disposable incomes and spending on ornaments, cars, televisions and fridges. Investment demand for gold has climbed almost fivefold to 366 tonnes in the same period as a rally for 12 straight years boosted bullion’s appeal as a store of value.
India’s current-account deficit widened to a record $21.8 billion in the quarter through March and was $16.6 billion in the three months through June, official data show. That’s weakened the rupee 2.2 per cent this year to 54.2550 per dollar after an almost 16 per cent plunge in 2011. A weaker currency raises import costs and fuels inflation in a country that meets more than 80 per cent of its oil requirements from overseas and is the world’s biggest user of gold.