Govt mulls over making gold imports pricey to control CAD
Finance Minister P. Chidambaram has hinted that import of gold may be made costlier to discourage the demand of the metal in order to contain widening Current Account Deficit (CAD).
CAD, which represents the difference between exports and imports after considering cash remittances and payments, had expanded to $38.7 billion or 4.6 % of the GDP during the first half of the current fiscal. Of this, gold imports contributed $20.25 billion.
During April-September, country’s foreign exchange reserve increased by only $0.4 billion, the increase would have been by $10.5 billion if the import was cut one half of the actual level.
Gold imports accounted to a foreign exchange spending of $56.2 billion during 2011-12. A measure was taken in the current fiscal budget to double the basic Customs duty on standard gold bars to 4 % from 2 % and on non-standard gold to 10 %. The hike in duty did lead to some decline in imports.
However, an increase in services exports of 4.2 % and, consequently, surplus in services which amounted to $29.6 billion and remittances of $32.9 billion, filled the gap b/w imports and exports considerably.
Adequate inflows of FDI ($12.8 billion) and FII ($1.7 billion) made it possible to finance CAD without drawing on country’s foreign exchange reserves.