India’s huge gold imports in the last financial year at $60 billion was partially responsible to high current account deficit, Prime Minister’s Economic Advisory Council Chairman C Rangarajan has said.
According to Rangarajan, India saw $60 billion worth of gold imports last year and the situation partly contributed to high CAD levels. “Gold imports in the previous year (2010-11) was $40 billion. The increase of $20 billion is partly attributable to high level of inflation. If you exclude that $20 billion, which I considered to be an excess, then the current account deficit would have come to moderate levels (last year),” Rangarajan said.
The current account deficit (CAD) was at 30-year record high of 4.2 percent of the GDP in 2011-12. CAD occurs when country’s total imports and transfers are higher than its total exports and transfers. High levels of CAD leads to a slew of problems, including deterioration in the currency, to the economy.
In the first quarter policy statement yesterday, RBI had said one of the reasons for not reducing interest rates was the high fiscal deficit and CAD. Rangarajan expressed the hope that the CAD will come down this year and capital flows into the country will be adequate to to cover the current account deficit to a large extent.
RBI Governor D Subbarao had also said the current account deficit would improve this fiscal as numbers for the first three months are indicating an improvement. “It is possible that this year the CAD might be lower than it was last year,” he had said.
The Governor had said numbers available for the first quarter show that the non-oil trade deficit has improved, which hints at an improvement in the CAD situation. According to World Gold Council, gold demand in India was down in the first three months of 2012-13.
Gold imports were impacted by a number of factors such as new tax on gold jewellery, increases in the import duty for gold and weakness and volatility in the rupee.