The recent measures by the government to curb the demand for gold has resulted in rise in the smuggling of the yellow metal,C Rangarajan, chairman of Prime Minister’s Economic Advisory Council, said today.
In a panel discussion regarding the country’s economic prospect, which was chaired by Reserve Bank of India’s governor D Subbarao, Rangarajan said, “If we ban gold imports, the smuggling will go up...there are already indications that smuggling
of gold has gone up in the last three months.”
Rangarajan said he has been told by Revenue Department officials that the seizures of smuggled gold have gone up in the recent past. The government has doubled the excise duty on gold to 4% this year to curb gold demand.
According to Rangarajan the increase in gold demand in recent years – to some extent – resulted in high inflation.
According to the former RBI governor, last year’s gold imports touched $60 billion, of which $15-20 billion was due to high inflation as people use the precious metal as a hedge against inflation. India has been the world's largest consumer and
importer of gold, and last year, imports touched 969 tonne.
Following the government measures, in April-October imports declined 35% on year and overall imports is set to drop
over 17% to 800 tonne this year.
Rangarajan’s statement comes at a time when there has been a speculation that government might further take action to reign
in gold imports in view of rising current account deficit (CAD).
While speaking in the same discussion, RBI Governor D Subbarao reiterated his concerns about rising about gold imports citing
its pressure on current and capital accounts.
“RBI has not put any new restriction on gold imports. Our announcement to stop lending for gold purchase was a reiteration of
decades-old decision,” Subbarao said while commenting the central bank’s recent instruction to banks not to fund gold
purchase.
Rangarajan sounded optimistic about GDP growth of six% despite growth in the last two quarters was 5.5% (Q1) and 5.3% (Q2). He expects growth rate climbing back to 7% next year and 8% to the year after. (2014-
2015)
According to Rangrajan revival of financial savings both, the government and household would be the key to revive growth. He blamed high fiscal deficit and inflation respectively for the tanking of savings rates of the government and households.
“As we put in place a program of fiscal consolidation and as inflation comes down the savings rate will go up” he said.
