The country’s overall trade performance signals an opportune time for removal of restrictions on gold, says the Economic Survey.
“The financial inflows in excess of the financial requirements have helped shore up foreign exchange reserves ($328.7 billion at the end of January 2015). These have helped lessen the vulnerability concern that led to serious stress last year,” said the Survey for 2014-15 tabled in Parliament today.
In 2013-14, India’s trade deficit declined to $135.8 billion from a high level of $190.3 billion in 2012-13, mainly on account of a decline in the growth of imports even though growth in exports was sluggish at 4.7 per cent.
The decline in imports was attributed to lower growth in oil imports (0.4 per cent) and negative growth in gold and silver imports.
Current account deficit
Current account deficit (CAD), which is the excess of foreign exchange outflows over inflows, touched a historic high of $88 billion or 4.7 per cent of GDP in 2012-13, mainly due to high imports of gold and petroleum products.
RBI curbs on gold import
In order to check the rising CAD, the government raised import duty on the yellow metal to 10 per cent, while RBI imposed curbs on import of gold and also laid down various pre-conditions for inward shipments of the precious metal.
The restrictions on imports of the yellow metal led to a rise in cases of gold smuggling which went up in 2013-14 to 2,441. In 2012-13 and 2011-12, the number of such cases stood at 869 and 500, respectively.
However, in November last year, easing restrictions on gold imports, the Reserve Bank had scrapped the controversial 80:20 scheme, according to which at least 20 per cent gold imported had to be mandatorily exported before bringing in new lots.
Gems and jewellery exports contribute about 15 per cent to the country’s total outbound shipments. In 2013-14, the exports were to the tune of $39.5 billion against total exports of about $312 billion during the fiscal.
CAD came down to $32.4 billion or 1.7 per cent of GDP in 2013-14.