Cautioning India’s gold imports may increase nearly three times and to an unsustainable level of $ 100 billion by 2015-16, an industry body survey wanted government to take steps to channelise savings in to other financial instruments to increase productive capacity of the economy.

“The foreign exchange resource that is used to import gold reduces the availability of this free exchange to finance the import of other commodities. The Reserve Bank of India (RBI) in its review of macroeconomic situation has said current account deficit is a cause of concern because of inelastic gold and oil demand. Efforts must be made to introduce more financial saving instruments and extensive education campaigns should be undertaken – particularly in rural areas – to minimise propensity towards gold,” said the study conducted by Assocham (The Associated Chambers of Commerce and Industry of India).

The study said that gold, as a commodity, does not add much to the productive capacity of an economy. Moreover, foreign exchange reserves used to import gold can be used to get other commodities. India is the largest importer of gold and accounts for nearly one-third of the annual demand with import bill rising to $33.8 billion in 2010-11 from $4.1 billion in 2001-02.

At these levels, gold imports are a huge burden on the balance of payments and accentuates the current account deficit.

The total import value of gold during last financial year was higher than the gross state domestic product of 12 states and budgeted estimated expenditure on fertiliser and food subsidy. “Equally astounding is the fact that India imported more gold than the annual budgeted estimated expenditure outlay on water supply urban development and sanitation,” said Assocham.

India’s gold demand is ironically 37.6 per cent more than China’s, although, China’s GDP is 3.5 times of India’s GDP. Compared with the United States, which has a 14 trillion dollar economy, ten times the size of Indian economy, India’s gold demand is almost five times.

With the government increasing import and excise duties on gold and silver, both commodities are set to cost more. The new rates on ad valorem basis – two per cent on 10 gm of gold and six per cent on 1 kg of silver – mean that importers will have to pay double the duty.

shrutiverma@mydigitalfc.com