Gold Imports: Adding to the deficit - Views on News from Equitymaster

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Gold Imports: Adding to the deficit

Aug 9, 1999

The import of gold into the country has grown by over 230%, on a year on year basis, to over 80 tonnes in June 1999. The jump in imports of gold is way beyond the government estimates. This is causing concern regarding the current account deficit. Moreover, with the growth in exports still languishing, there is no scope to reduce the pressure on the current account deficit.

A larger current account deficit could have a catastrophic effect on the country if at the same time the inflows from foreigners were to slow down. This would result in a serious balance of payments crisis and probably result in a depreciation in the value of the domestic currency. India would therefore be able to sustain a higher current deficit only if the inflows in the form of foreigners were to sustain at levels at which the financing costs of imports and debt servicing costs are covered.

Earlier, the government had permitted the import of gold through the open general license window. The aim of this exercise was to limit the growth of the underground market that existed for the import and export of gold in the country.

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