Wednesday, October 02, 2013

Thirst for gold robs India's econonmy...

It is easy to find the roots of India's economic malaise in government indecision, entangled legal processes, wasteful and often hypocritical subsidies supposed to help the poor. It is easy too to blame democracy and de-centralization for government paralysis and on corruption which - unlike in China - often fails to delivers results.

But from the point of view of foreign observers, these are just additional problems added to a much more fundamental one. Perhaps it is best illustrated by a statistic released this week and which put further downward pressure on the rupee. India's current account deficit for the June quarter widened further to US$21.9 billion or 4.9 percent of GDP.

But no less than US$16.5 billion of this was accounted for by imports of gold. In other words, without the import of the almost useless yellow metal, the nation's current account would have been little more than 1 percent of GDP, a figure of little consequence. Although gold imports fluctuate widely from quarter to quarter, on average India is buying around 1,000 tonnes a year worth around US$50 billion - plus whatever is smuggled from Dubai and other Gulf centers. Thus investment in gold amounts to roughly 3.5 percent of India's GDP.

 In late August, a source told Reuters that the Reserve Bank of India, the country's central bank, would launch a pilot project to ask banks to buy back gold jewelry, bars and coins for rupees. Lenders would have to offer better rates than pawn shops and jewelers to lure sellers. The government has already raised import duties three times in the past year on gold. Full story...

Related posts:
  1. No one can call gold a safe haven ever again...
  2. Next time you want to buy some gold, you might want to look at this first...
  3. Indian man spends $250,000 on a gold shirt!!!
  4. In booming India, all that glitters is gold...
  5. India in reverse as nation goes into deep slump...

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