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Barely a week after ruling out easing the curbs on gold imports, Finance Minister P Chidambaram on Monday said he would revisit the restrictions by the end of the current financial year. He, however, added the review will happen only if the current account deficit (CAD) position is comfortable.
“I am confident that by the end of this year, we will be able to revisit some of the restrictions on gold import but we will do so only when we are absolutely sure that we have a firm grip on CAD,” Chidambaram said while addressing tax officials on Customs Day.
While he did not say whether he was referring to the calendar or financial year, revenue secretary Sumit Bose later clarified the review could come by the end of March.
The demand for a re-look at the curbs had come from United Progressive Alliance chairperson Sonia Gandhi last week in a letter to commerce and industry minister Anand Sharma.
Economic Affairs Secretary Arvind Mayaram said that CAD would be below $50 billion and there was no co-relation between the rupee and the decline in Argentina’s currency peso, which led to a massive fall in stock markets around the world. On growth, he said the green shoots were visible.
“Foreign exchange reserves are (at an) all-time high. We have very strong fundamentals... I don't think there is any cause of worry,” Mayaram said when asked about rupee slipping to 63 against the dollar and markets plunging on global cues.
The finance minister said the long-term method to control CAD is not to indulge in policy repression by restraining the import of gold, but rather to increase exports.
“I know gold smuggling has increased... But the restrictions on gold import were absolutely necessary because it is these restrictions which have brought down gold import which in April and May had crossed 300 tonnes," he pointed out.
There has been one to three tonnes of gold smuggled into the country every month following the restrictions imposed on shipment last year.
In the current financial year, CAD rose to an all-time high of 4.8 per cent of the GDP. It remained high at 4.9 per cent of GDP in the first quarter of FY14. However, curbs on gold imports together with rising exports narrowed it down to 1.2 per cent of the GDP in the second quarter. In the first half of FY14, CAD stood at 3.1 per cent of the GDP.
“If we had not imposed restrictions, there was no way we could have managed balance of payments or the current account deficit,” said Chidambaram.
To contain the rising gold imports, the government had increased customs duty on the yellow metal three times in 2013. The levy currently stands at 10 per cent. Besides, Reserve Bank of India (RBI) linked imports of the metal to the condition that 20 per cent of it would be exported.
Gold imports, which touched a high of 162 tonnes in May, fell to 19.3 tonnes in November in the wake of a series of curbs by both the government and RBI. The imports in December were a "little higher" than in November, Bose said.
Gold imports constitute the second biggest component in the import bill after crude oil.
