While Finance Minister P Chidambaram cannot be faulted for wishing to hold on to the higher duties and import curbs on gold, it is worth keeping in mind that gold imports have been falling steadily for the last two quarters — from $16.5 billion in the June 2013 quarter to $3.9 billion in the September quarter and $3 billion in the December quarter — precisely because gold prices are easing with economic recovery in the US, and globally. Despite the hike in gold import duties gold imports rose to 338 tonnes in the June 2013 quarter precisely because global growth looked uncertain, as did the likely impact of the US taper. With both looking distinctly better, gold imports plunged in the September and December quarters. A lot would now depend on whether the country’s current account deficit (CAD) comes under control which will be known when the budget is presented. Experts say if the CAD is under $50 billion, the economy will be in a position to absorb a hike in gold imports.
Reports say because gold is cheaper abroad, gold houses and smugglers are turning to NRIs to bring in the yellow metal legally after paying duty especially from the Gulf. While some of these passengers may be bringing in the metal for personal use, the large quantities make it clear that what is being seen is disguised smuggling. Yet, it is important that that import curbs be continued for now.
Indeed, the bigger danger to the CAD, when growth begins to pick up, is from increased imports of both coal and steel scrap, necessitating action on opening up coal mining to the private sector as well as moving the courts to lift various bans on iron ore mining. Regulatory and bureaucratic delays in adding new mines and expanding existing ones have made India the No. 3 importer of coal, even though it sits on the world’s fifth largest reserves. Likewise, as generation of steel-melting scrap is low, we will remain a large importer of steel scrap.
Source: By The New Indian Express
Source:Bullion Bulletin