Gold prices may go up further if the Centre goes ahead with its plan for restricting import of the yellow metal.
The demand for gold has contributed hugely in increasing India’s current account deficit. The government had already increased the import duty on the yellow metal in the last budget.
“Gold import must be moderated. We cannot afford to spend so much on importing gold. Import of gold is a huge strain on current account,” Finance Minister P Chidambaram told reporters here on Wednesday.
He said if the imports were not moderated, the government would be left with no choice but to make its imports more expensive. The current account deficit widened to a record high of 5.4 per cent of GDP in the September quarter due to slowing export growth, high gold imports and a hefty oil bill.
This is for the second time in a year that the government is contemplating taking measures to curb gold import. In the Budget for 2012-13, the then finance minister Pranab Mukherjee had already doubled the import duty on gold to 4 per cent.
Chidambaram said he expected gold imports to touch $40 billion in the current fiscal and said curbing it was necessary also from the point of view of saving India’s foreign exchange.
“Suppose gold imports had been one half of the actual level, that would have meant that our foreign exchange reserves would have increased by $10.5 billion,” he said.
India’s gold import bill was $58 billion in 2011-12. This moderation in gold imports was mainly due to raising of import duty.
On apprehensions that rise in import duty has led to increased smuggling of yellow metal, Chidambaram said the reports “are mostly speculative.”
“May be some smuggling has taken place but whatever level of duty, there is always smuggling,” he said. The increasing current account deficit is still a worry.
The minister said the only solace was that it was being financed without drawing on country's foreign exchange reserves, mainly because of adequate inflows of FDI, which stood at $12.8 billion and FII that was at $1.7 billion this year.
Chidambaram said there was some accretion in foreign reserve. It had been raised by $0.4 billion or $400 million.