Strict measures needed to contain gold imports

After witnessing a year of lacklustre and derailed growth, the emergence of P. Chidambaram at the helm of the Finance Ministry saw push through of various reforms that helped stabilise market mood to some extent. With rising current account deficit, the economy is looking down the barrel and Finance Ministry would be planning measures aimed at bringing down the deficit. All eyes are on the Budget to get a stance on efforts made by the Ministry in this regard and revive the budding optimism in the market.

The Budget 2013-14 is expected to be more rational than populist. Finance Ministry could possibly come out with a mechanism for boosting economy to restore confidence and urge growth. It could possibly provide priority to fiscal rectitude in the upcoming Budget. Subsidies will likely be controlled mainly for fuel.

Global commodities

To curb the current account deficit, the Government might take up strict measures on gold imports into the country. The K. U. B. Rao committee recommendations may be considered by the Finance Ministry. The committee has recommended introducing new gold-backed financial products to release the hidden economic value of the idle gold within an economy. Products such as gold accumulation plan, gold linked account, modified gold deposit and gold pension products may be introduced.

New investment avenues in gold will help to control rising current account deficit which reached an all time high of 5.4 per cent of the GDP in July-September quarter. Setting up of a Gold Bank that can pool the idle stock of gold, and prohibit bank finance to purchase of gold bullion may also be considered.

Gems and Jewellery Export Promotion Council (GJEPC) has put forth a wish list such as partial duty-free import for diamonds and establishment of special notified zones to attract international mining companies and trades before the Finance Ministry.

Agriculture commodities

Proposals from agriculture sector such as provisions for setting up the National Agriculture Climate Damage Fund and creation of post-harvest infrastructure in villages are expected. Imposing a duty on palm oil after many years may also be considered.

Demand for removal of levy on the sugar industry and extending the time limit for re-export of spices from 120 days to one year perhaps could come into Budget discussion. Eliminating the levy on sugar will attract more liquidity in the industry but the subsidy burden will transfer to the Government. Extension of time limit for re-export of spices could draw more flexibility for export and re-export but the Government will most likely be against this proposal.

Suggestion for 2 per cent export incentive for pepper and chilli will encourage exporters to ship more value added products. Drought relief package for cardamom farmers in Kerala is another demand from the farming sector.

Implementing this could provide ample compensation to farmers who have lost 20 per cent of their produce due to scanty rainfall. Hike in import duty with falling domestic natural rubber prices could be a case for consideration under this Budget.

Reintroducing Commodity Transaction Tax is another topic the Finance Ministry could give a thought on. Meanwhile, introducing CTT into the commodity futures market would impact the volume and liquidity of the commodity exchanges and redirect hedgers and speculators to another platform. Earlier, the CTT was levied in 2008-09 Budgets but was not put into operation.

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