This is one of the 'Did you know' series posts. I had an opportunity to attend Dr. C Rangarajan's speech on 'Indian Economy and the way forward' yesterday. The speech went on for about an hour and half including Q&A from audience. It was a very good refresh of my Macro Economics class I attended 3 years ago. One particular point caught my attention and I felt its my responsibility to create awareness about it.
He mentioned about various challenges that Indian Economy is facing and one of them being Current Account Deficit (CAD). Its basically net of inflows and outflows of foreign currency. We are financing our foreign currency needs (basically arising out of imports) using the capital inflows from foreign countries. This is certainly not sustainable. If there is a fluctuation in foreign capital, we cant service our current account resulting in depreciation of rupee, hurting our exports. One of the prime reasons for wide CAD is import of Gold. I was astonished to know that not an ounce of Gold is produced in India. Every particle of yellow metal we see around us produced outside of India. We imported close to $54 billion worth of Gold in last fiscal year. At the moment we have close to $90 bn CAD.
Why do we love Gold so much? Gold is generally purchased in two modes, one as Jewellery and other as Asset (in physical form or ETF) for investment. When the inflation is hovering in double digits and India Inc putting pressure on RBI to lower interest rates, Gold appeared like a great investment option for Indian citizen to save money. Gold in the form of asset does not result in any productive form of investment.
Dr. Rangarajan suggested that as the inflation comes down, hopefully investment in Gold comes down resulting in lesser imports. Guess how much of Gold we imported in last fiscal year? A thousand tonnes !! Woah...
