The saving in the import bill for petroleum crude and products--by just over a billion dollars, in the wake of a fall in their prices--was completely wiped out by additional imports of $1.9 billion worth of gold and silver in April-September. Such a stern view of lavish imports of gold and silver is, however, strictly unwarranted, at any rate in terms of their impact on the current account.

This is because while these imports bloat the trade deficit, they do not correspondingly inflate the current account deficit. Gold and silver imports are financed by private fund transfers (by NRIs and expatriates); the transfers inflate the receipts under invisibles, and this takes care of gold andsilver imports. Bullion imports are thus neutral in their impact on the current account.

If any thing, the surge in imports of gold and silver--reckoned to have been sustained through November--has served two purposes. First, it has kept out smuggling and thus prevented leakage of foreign exchange earnings. This has helped ease the pressure on the rupee which should have depreciated during a year of declining exports and rising non-oil and non-gold imports. (It could be argued, however, that the stable rupee has been unhelpful to exports and has abetted a net outflow of foreign portfolio investment). Second, bullion inflow has attracted demand away from consumer goods, and thus retarded the rise in inflation.

But there is a flip side to the story. Savings have been diverted into investment in gold and silver. This is bad for an economy facing an on-going slack in investment. In April-September, 1998, imports of machinery were down by 14 per cent. There was also a decline in imports of severalintermediates, including organic and inorganic chemicals, reflecting the lingering recession. Thus, it will be wrong to infer that gold and silver imports are rising because of burgeoning prosperity.

The preference for bullion indicates that investment avenues have narrowed (or remain blocked). This is also the reason why foreign direct investment has slowed down. Foreign investment rushes into a booming economy. It becomes wary when confronted with loss of dynamism in the host country. The current drive to woo foreign investment will yield but marginal results, until domestic investment accelerates.