By Dilipp S Nag http://www.diamonds.net
India’s gold imports are unsustainable and the government should encourage savings in formal financial instruments to increase productivity, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) concluded.
The group explained in a study that the current level of gold imports are a tremendous burden on the balance of payments and puts pressure on the country's current account deficit. These imports represent a massive strain on investable resources and is discouraging domestic savings, ASSOCHAM stated.
India is the world’s largest gold importer, accounting for nearly one-third of annual global demand, and imports reached $33.8 billion in fiscal 2010-11 compared to just $4.1 billion 10 years ago. The trade body projected that India’s gold imports could grow to $100 billion by 2015-16.
The study, titled ''India’s Gold Rush – Its Impact and Sustainability,'' noted that India’s total gold imports during the past financial year was higher than the gross domestic product of 12 states and exceeded the country's estimated budgeted expenditure on fertilizer and food subsidies.
''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 D.S. Rawat, ASSOCHAM’s secretary general.
The study follows a report by the Reserve Bank of India, which noted that the country’s current account deficit is a cause of concern because of its rigid gold and oil demand.
ASSOCHAM stressed that India’s gold demand is out of proportion when considering other countries. The study noted that India’s gold demand is 37.6 percent larger than China’s but China’s gross domestic product (GDP) is 3.5 times of India’s. Similarly, India gold imports are almost five times the amount of the U.S., but its economy is about one-tenth the size. The group added that India has one of the highest savings rate in the world but lags behind major economies in terms of key economic indicators.
ASSOCHAM stressed that foreign exchange reserves should be used to diversify its commodity imports. To encourage investment in other assets, ASSOCHAM suggested that post offices, especially in the rural areas, should be used to sell government guaranteed instruments to extend their reach throughout the country.
“Efforts must be made to introduce more financial saving instruments and extensive education campaigns should be under taken, particularly in rural areas, to minimize propensity towards gold,” ASSOCHAM concluded.
Last month, the government increased the import and excise duties on gold to 2 percent per 10 grams of the yellow metal.
