Opinion: India hopes Modi has the Midas touch

True to Prime Minister-designate Narendra Modi’s tweet predicting “good times are ahead”, the gem and jewellery industry is pinning its hopes on the new finance minister, along with the Reserve Bank of India, for further relaxation in the strong gold import rules that literally crippled the industry and saw smuggling flourish. It is estimated that gold-smuggling has risen to 200 tonnes this year so one can imagine the crores in foreign exchange lost. Additionally, the price of gold in India had shot up with the premium being Rs 2 lakhs per kg of the precious yellow metal.

RBI’s move this week permitting a larger number of players to import gold under the 80:20 scheme — whereby 20 per cent of imports have to be exported — has already had a salutary affect. Just on the announcement, gold prices dropped immediately to Rs 27,900 per 10 grams from Rs 29,500, and the premium fell to Rs 85,000 per kg. If the new government relaxes imports further and cuts the 10 per cent duty on imports to less than half, the premium could well drop to Rs 20,000 per kg and the price of gold will follow south.

It, however, cannot be denied that import curbs helped bring down gold imports from 860 tonnes to 190 tonnes in the first three months of this year and thereby closed the gap in the burgeoning current account deficit which had led to the weakening of the rupee. Before the curbs, gold imports were the second-largest, after oil. While it would be easy for the incoming government to lift curbs on gold, albeit gradually, it would still have to deal with the insatiable demand of the consuming population.

Among the reasons for people hoarding the yellow metal were economic uncertainty and inflation. If the economy improves on these two counts, perhaps the hunger for gold too would be curbed to a certain extent. Indians traditionally have been the largest consumers of gold and India is said to have the largest privately-held hoard. This does not include the crores and crores of rupees worth of the precious yellow metal held in temples and by some godmen.

The gem and jewellery industry had given several recommendations to the UPA-2 government to bring out some of the tonnes of gold lying idle with the people. But this fell on deaf ears and the government went in for the easy option of curbing imports and imposing a hefty import duty. The nation will hopefully learn at some point how much the country lost through gold-smuggling and who were the people who benefited.

It is hoped that the new government will be more imaginative in handling the country’s hunger for gold.