Finance Minister P Chidambaram on Monday indicated more steps could be taken to check gold imports, in the face of a record current account deficit (CAD). “Some more steps, if necessary, would have to be taken, but I appeal to the people of India to contain their passion for gold,” Chidambaram told reporters on the sidelines of the Annual Day function of the Competition Commission of India (CCI). Gold imports came down a bit to $53.8 billion in 2012-13 from $56.5 bn in the previous year but the level was still elevated. These imports accounted for almost a sixth of the $322 bn of non-oil imports in 2012-13. The CAD was a record 6.7 per cent of gross domestic product in the third quarter of 2012-13. These imports jumped 138 per cent (over a year) to $7.5 bn last month, the highest so far this year, pushing up the trade deficit (for the month) to $17.7 billion.
However, the finance minister said: “We anticipated that gold import will increase. April and May all over India are months when there is the largest number of weddings. So, we were not surprised that gold imports increased in the second half of April.” The government had taken several steps in the recent past, including raising import duties, to curb the inbound shipments. The Reserve Bank (RBI) has put restrictions on banks regarding gold import. It is to also issue index-linked bonds next month, to try and wean away investors from gold.
“The passion for gold is causing imports and it is leaving a big hole in the CAD,” Chidambaram said.
Gold and oil imports have been blamed for widening India’s trade deficit and in turn the CAD, which also includes net trade in services and net investment income. The CAG is projected to widen to a record five per cent of GDP in 2012-13 against 4.2 per cent in 2011-12. C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, had last week said gold imports should be brought down from 1,000 tons a year to the 700 tons which prevailed a few years earlier.
Separately, on the adverse rating last week of Standard & Poor’s (S&P), Chidambaram said they were being conservative. He said there was a case for an upgrade of India, currently at S&P’s lowest investment grade, as macro economic conditions had improved. Last week, S&P not only retained India’s rating a notch above the junk grade but also warned of downgrading to non-investment grade in a year if measures to boost growth and investment were not taken.
“Our case is that we deserve an upgrade both on the outlook and the rating. S&P may not have been convinced about that,” Chidambaram said. S&P did talk of the possibility of upgrading its outlook if India took steps to improve the investment climate. While retaining India’s sovereign rating at ‘BBB-’, citing high fiscal and current account deficits, S&P said there was at least a one-in-three likelihood of a downgrade within the next 12 months. “There is nothing to worry. Our macro-economic position today is much better than what it was in August 2012,” Chidambaram said, adding the Indian economy was entering a new phase of strong growth. India’s economic growth slowed to a decadal low of five per cent in 2012-13. It is now projected to increase to 6.1-6.7 per cent in the current financial year, following a slew of steps by the government and a fall in global commodity prices.
Chidambaram reiterated his stand for mergers in the banking sector, so that India can have two or three global size banks. “There are other sectors that may well need restructuring…. For example, some banks, including some among the 26 public sector banks that we have, may be better off merging. The need for two or three world-sized banks in an economy that is poised to become one among the five largest in the world is rather obvious,” he said on the occasion. The country’s largest lender, State Bank of India, has acquired board approval for the merger of its remaining five associates with itself. It merged State Bank of Saurashtra, with itself in 2008 and with State Bank of Indore in 2010.
Chidambaram also cautioned CCI not to become another bureaucracy to stifle growth.
Finance Minister P Chidambaram today said that competition rules in the country should not become “another bureaucracy, stifling growth”.
Source: Bullion Bulletin