Thirst for gold robs India economyBy Asia Sentinel Oct 02, 2013 1:36PM UTC
The precious metal exerts a huge drag on the current account, reports Asia Sentinel
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.
While gold is considered auspicious as a gift or offering at religious festivals, and forms an essential part of a bride’s dowry, families amass it as both fashion accessories and as a cultural objective – as well as a hedge against economic disaster. In addition, according to Reuters, India’s Tirupati temple, considered one of the world’s richest, is estimated to hold gold worth up to $80 billion.
Imagine too if that US$50 billion had been invested in public health, education and basic infrastructure what that could have done to improve living conditions in the medium term, to enable manufacturing to grow fast, for jobs to be created from the vast pool of underemployed rural and urban informal workers.
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