The Economic Advisory Council to the Prime Minister (PMEAC) chairman C Rangarajan on Saturday said that banning gold imports will push up its smuggling. “If we ban gold imports, the smuggling will go up... there are already indications that the smuggling of gold has gone up in the last three months,” he said, addressing the silver jubilee celebrations of the RBI-promoted Indira Gandhi Institute of Development Research.
“I believe gold imports will come down when inflation goes down,” he said. Gold is considered as a hedge against price rise. Rangarajan said that he has been told by the revenue department officials that the seizures of smuggled gold have gone up in the recent past.
At the same event, Reserve Bank governor D Subbarao reiterated his concerns over the rising gold imports and cited its pressure on the current account deficit. He, however, said, “RBI has not put any new restriction on gold imports. Our announcement to stop lending for gold purchase was a reiteration of a decades-old decision.”
Rangarajan said that last year gold imports touched $60 billion, of which $15-20 billion was due to high inflation as people use the precious metal as a hedge against inflation. RBI deputy governor Subir Gokarn had recently called for the dematerialisation of the metal to discourage its physical possession, hoping that the move would trim imports.
Traditionally, India has been the world’s largest consumer and importer of gold. Last year, imports were to the tune of 969 tonnes. However, doubling of the excise duty to 4% in the last budget, curbs the RBI imposed on gold loan value (down from 85-90% of the value of jewellery to 60%) and banning banks from funding gold purchase by loan companies have led to a drop in imports.