India can afford gold imports of $30 bn: C Rangarajan

Dec 11 2013, 18:30 IST
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As inflation comes down and as financial assets become more attractive, perhaps this part of demand for gold can come down and we can probably tolerate USD 30 billion worth of import of gold, As inflation comes down and as financial assets become more attractive, perhaps this part of demand for gold can come down and we can probably tolerate USD 30 billion worth of import of gold," C Rangarajan.
SummaryC Rangarajan issues informal cap on gold imports; major reason for high CAD was due to yellow metal.

Prime Minister's Economic Advisory Council (PMEAC) chief C Rangarajan said India can tolerate USD 30 billion worth of gold imports. A major reason for high current account deficit (CAD) in the last fiscal was high imports of gold.

"As inflation comes down and as financial assets become more attractive, perhaps this part of demand for gold can come down and we can probably tolerate USD 30 billion worth of import of gold," C Rangarajan said at the Delhi Economic Conclave.

Earlier inaugurating the conclave, Finance Minister P Chidambaram said India can neither finance a CAD of the order of USD 88 billion as it did in 2012-13 nor can afford to pay for import of gold in the order of USD 50 billion or more.

The CAD touched a lifetime high of USD 88.2 billion in 2012-13 mainly due to high gold imports (845 tonnes) and firm crude oil prices. Higher CAD also led to the battering of rupee which plunged to all time low of 68.85 in August-end. The government as well as Reserve Bank took a slew of measures to curb gold imports. The measures showed results as in-bound shipment fell significantly.

As per the latest data, the gold and silver imports declined 80.55 per cent to USD 1.05 billion in November year-on-year. The imports had totalled USD 5.4 billion in November, 2012.

Meanwhile at a panel discussion at the conclave, RBI Governor Raghuram Rajan said that some part of reduction in current account deficit is coming from suppressing gold imports.

"This was necessary in short run but it is not desirable over the medium term," he added.

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