Deconstructing the yellow metal’s sheen

Why is the current account deficit rising?

Rising gold imports have pushed up the current account deficit to a historic high of $72 billion or 4.2% of GDP in 2011-12. Of that, gold accounted for 70% of the current account deficit. For 2012-13, the Economic Advisory Council to the Prime Minister had projected the current account deficit at $67.1 billion, or 3.6% of the GDP and that can be achieved if gold imports are reduced. To curb the import of gold, the government last year had increased the import duty of the metal. The import duty on gold has been fixed at 2% of the value instead of the earlier R300 per 10 grams.

Why is gold demand rising in India?

India is the largest importer of gold in the world. In 2011, World Gold Council data shows, the demand for gold increased to 961 tonnes valued at $47.8 billion dollars. In the nine months to September this year, India has imported 591 tonnes of the precious metal valued at $32.5 billion. Demand had slowed down in the three months to June this year to 181 tonnes because of high prices, and a nation-wide strike among jewellers in protest of government plans to increase the excise duty on refined gold from 1.5% to 3%. However, after much pressure, the government rolled back the the

... contd.