Gold Import: A Capital Account Acquisition? (Counter-View)

Abstract

Gold import has been an issue of national debate in India. Economists opine that gold import is responsible for the bloating current account deficit (CAD). To check the widening current account deficit, United Progressive Alliance (UPA) government raised import duty on gold to 10 per cent from 2 per cent in stages. It also instructed all importers of gold to export 20 per cent of gold from every consignment of import. Gold import restrictions led to the CAD fell to 1.7 per cent of GDP of India. The next Bharatiya Janata Party (BJP) Government under Narendra Modi lifted the restriction on gold import. The jump in gold import widened the CAD. By December 2014, the CAD became 99 per cent of the annual estimate. But, the easing of gold import was supported by a few economists including Swaminathan S Ankalesaria Aiyer. Swaminathan termed gold import a ‘capital account acquisition’. He thought that gold import would work for inclusive growth for the ‘aam aadmi’ or the common man of India and proposed a change in the composition of capital account so as to accommodate gold in it. This article surveyed literature and compiled data on how gold import contributed to the CAD and fiscal (mis)management of India. It also tried to identify research gaps so that future fiscal management of the country could be studied comprehensibly in the presence of gold import. As India is bound by multilateral obligations, the paper tried to recommend necessary steps so that the country would not be put on defensive.