Column : Back to the golden past

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MK Venu : Jan 16 2012, 03:31 IST

There has been an unprecedented surge of gold imports into both India and China in 2011 and this is likely to continue in the future. Pure economics cannot explain why these two traditional societies are importing gold on such a massive scale. Just look at the numbers: India and China together are incrementally buying nearly 45% of all gold being produced globally and, if imports continue at the present rate, the two societies could end up consuming up to 70% of the yellow metal in the years to come. India’s annual imports, at over 900 tonnes, are marginally higher than China’s. But China, essentially coming off a lower base, has shown gold import growth of over 400% in recent months.

India could be importing gold worth about $55 billion by the end of this fiscal, a 60% rise over the gold imported in 2010-11. In fact, such a massive surge in gold import is being seen as a problem by policymakers, especially in the current context of rising current account deficit putting pressure on the rupee. If gold imports had been normal, like what was seen in the earlier years, India would have saved over $25 billion of foreign exchange this year, thus virtually halving its current account deficit, which may touch 3% of GDP in 2011-12.

So, the policymakers’ dilemma is whether to discourage imports of gold, which is seen as a non-productive asset in the short run. It just sits in the vaults of households across the country. Indian households

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