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The steep fall in the country’s current account deficit (CAD) is being seen as a big relief and the equity and currency markets have responded positively.
The correction was triggered by a sharp fall in gold import; these are likely to be half of what it was in 2012-13. The gold import bill was only $21 billion in the first three quarters of this year, says Sonal Varma, Asia Economist of Nomura Financial Services.
“The curbs, along with lower gold prices, may lower imports to around $25 billion in FY14 from $53.8 billion in FY13.”
She feels the CAD will be 1.9 per cent of gross domestic product (GDP) this financial year and could go up next year, with the gold curbs being relaxed. The CAD figure is much less than what the finance minister had projected in his interim budget speech, giving room to relax the import curbs.
HSBC Global Research also sees the government relaxing the gold import curbs, while agreeing this would again push up the CAD.
C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, had earlier projected the CAD at $70 bn (3.8 per cent of GDP) in 2013-14 against an estimated $88.2 bn (4.8 per cent of GDP) in 2012-13. It is now expected to be half the projection.
BNP Paribas’ Asia Market Economics analyst, Mole Hau, says a lower CAD and a stable rupee might face a test when gold import curbs are lifted. He says the real test of the rupee’s stability will be when administrative restrictions on these imports are lifted.
Market players and sector analysts, however, say it is risky to keep gold imports artificially suppressed.Smuggling was estimated at 110 tonnes by the World Gold Council last year and at 200 tonnes this year. “The problem is availability for genuine and honest jewellers, facing several difficulties in getting gold officially,” said Haresh Soni, president, All India Gold and Jewellery Trade Federation. He said smaller jewellers and artisans are moving out or have no business. He recommends the Reserve Bank of India consider relaxing the import norms.
