Indians
along with Chinese, are known for their lust for gold. From times
immemorial, Indian families have been hoarding gold, which forms the
main part of family treasury. At the beginning of our era, India was
a prosperous region, exporting huge amounts goodies so much desired
by people in Arabia and particularly Romans. The imports from India
included spices, pearls, muslin,ivory etc, while exports to India
were very few and consisted mostly of wine, musical instruments,
singing boys and dancing girls. The balance of trade was so adverse
that Rome had to pay in Gold Bullion to India every year. Pliny the
Elder ( a Roman author, naturalist, and natural philosopher, as well
as naval and army commander of the early Roman Empire) has commented
while remarking about the adverse balance of trade of the Roman
empire: “This is the
price we pay for our luxuries and our women. At the last reckoning
one hundred million sesterces are taken away by India, Seres and
Arabia.” All this gold
imported into India over last two thousand or even more number of
years, has just disappeared and no one really knows how much gold
Indians actually have with them. Western economists do not understand
this craving for gold by Indians, when gold metal is not even mined
in India. Some say that Indians are fascinated by Gold. This is one
of the most stupid arguments, I have ever heard and it hurts the
native intelligence of Indians. Indians are not small children to get
fascinated by something that glitters. Indians do not buy diamonds,
which glitter even more, the way they buy gold.
My
grandmother always used to tell me that for a woman, her best friend
is her gold. I was just a school boy then and could never understand
the real meaning of what she said and would always wonder as to how a
piece of metal can be someone's friend. Now, not only I am ready to
vouch for what she said, but would also gladly extend its scope,
saying that for every person, a piece of gold any time would be his
best friend. There is a well known English phrase that says “ A
friend in need is friend indeed,” how true! And a piece of gold
perfectly fits this description of a friend as well. Governments come
and go in India. They bring in restrictions on gold trade to cut down
imports, only to lift them later as they realise the futility of it
all.
Government
obviously does not like such lusty buying of gold by it's citizens.
When anyone in India buys gold, he is actually spending dollars since
no gold is mined in India. If many people start buying gold, demand
for dollars goes up and makes dollars strong vis a vis Rupees. This
depreciates the Rupee and makes other imports like oil also more
expensive. Since Government does not want to increase the market
prices of oil based products, it gives subsidies to oil companies.
This increases the fiscal deficit of the Government. Higher deficit
means Government starts borrowing more and more. This makes overall
money supply very tight and interest rates increase. The result is
that the economy grows at slower rate.
In
2013, India's current account deficit (CAD) reached a record 4.8% of
GDP. According to the Government the yellow metal is one of the
biggest contributors to the country's trade imbalance, second only to
oil. To reduce this deficit Government increased import duty on gold
to 10% and banned direct import of gold by banks in India. This has
definitely helped and India's official gold imports fell 63%
compared with the year before. The IMF expects India's current
account deficit also to fall to around 3.3% of GDP this fiscal year.
After imposition of this duty, the price of gold in India continues
to be about Rs 4,000 higher than the price in Dubai.
But
have these measures really helped to bring down gold consumption in
India? I do not think so. Although it's impossible to calculate
exactly how much gold was smuggled into the country in response to
import restrictions, the Indian Finance Minister estimates that about
30 to 40 tonnes of gold must have come through unofficial channels.
However World Gold Council believes this to be an underestimate and
says that smugglers must have brought in around 200 tonnes
throughout the year. That is a staggering number, but is likely to
be realistic considering the tonnes of gold brought in by air
travellers to India.
Eligible
passengers, (Persons of Indian Origin or an Indian returning to India
after a period of six months of stay abroad.) are allowed to import
gold up to 1 kg as personal baggage by paying 10 per cent customs
duty in foreign currency. Between April-December 2013, customs
officials seized about 200 kilos of gold from just from three
airports in south India—Kochy, Trivandrum and Trichy, compared to
just 10 kilos last year. Government has now realised that many
unscrupulous elements are smuggling gold by hiring eligible
passengers to import gold on their behalf against this 1 Kg rule.
The
Government has now tightened baggage rules, requiring inbound Indian
passengers to provide details such as source of funds for importing
the metal as well as their air tickets. The baggage receipt issued by
the Customs will now include the engraved serial number on gold bars
and the item-wise list of ornaments. However, it is doubtful whether
these measures would bring down the quantities of gold brought in
India as smugglers can always find new ways.
By
June 2014, a new Government would be in place in Delhi. It would have
to address the problem of Gold imports. However if inflation
continues to rage, people are going to buy gold, whatever may be the
price or import duty, whether it is legally imported or smuggled. My
grandmother's advice is valid even today. A piece of gold is man's
(or woman's)best friend for sure, even now. The new Government would
have to bear this in mind, no doubt! With India's population having
this kind of mindset, the gold smugglers are never going to say die
and on the contrary are going to prosper, unless gold prices return
to the same level as international price of gold.
11th
March 2014
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