Appetite for ‘unproductive gold’ needs to be reduced

High current account and trade deficits make it necessary to discourage imports of consumer durables and more importantly "unproductive" gold, said the Economic Survey for 2011-13. India, the largest consumer of gold, imported 969 tonnes despite volatile prices in the calendar year 2011.

Import of gold was $50 billion till January and is expected to be around $58 billion for the full year. In financial year 2009-10, it stood at $33 billion and marginally dipped to $30 billion in 2010-11. The World Gold Council has projected imports to fall to $38 billion in 2012-13.

Recently, even the recent Prime Minister's Economic Advisory Council had blamed the sharp rise in gold prices for the current account deficit and stressed the need to limit its appetite in India. With the survey too suggesting that "unproductive assets like gold" may be discouraged, the Budget may take measures to curb gold demand.

"A trade deficit of more than eight per cent of GDP and CAD of more than three per cent is a sign of growing imbalance in the country's balance of payments. There is scope therefore to discourage unproductive imports like gold and consumer goods to restore balance," the survey said.

Many economists in the recent past have spoken about making other financial assets such as mutual funds and insurance products more attractive so that money gets diverted from gold towards other "more productive" assets.

In its review of the economy 2011-12, the PM's EAC had said, "There is clearly a need to examine and rectify the situation so that household savings come back to the organised financial market."

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