In the first half of this year, CAD stood at USD 26.9 billion (3.1 per cent of GDP), down from USD 37.9 billion (4.5 per cent of GDP) in the first six months of 2012-13. The government and the RBI expect to contain CAD at USD 56 billion in 2013-14. In the previous fiscal, it had touched a record high of 4.8 per cent.
Ever since the release of official data pointing out to a reduction in CAD, there has been speculation that RBI and the Finance Ministry may withdraw the extraordinary steps, saying they were leading to smuggling of the precious metal.
The government had increased import duty on gold imports, considered a prime reason for soaring CAD, from 2 per cent in January 2011 to 10 per cent as of now. RBI had imposed the 80:20 rule for bank funding of gold imports meant for exports, under which an importer to get bank funds should export 80 per cent back after value additions.
“The gold restrictions are a distortion. And they are a necessary distortion at this point in time to restore balance in CAD. But going forward, we will not like this distortions to persist and we would like to remove it,” he said.
Gold imports accounted for USD 56.8 billion of the USD 88 billion CAD in FY 2013.
According to experts, investors had to take to physical assets like gold and real estate due to the negative rate of returns in financial instruments. According to analysts, gold imports are set to decline by over 70 per cent this fiscal. Minister of State for Finance Namo Narain Meena had said last week in Parliament that both the government and the RBI had taken a number of measures to contain CAD and boost capital flows.
The measures included compression of gold, silver and non-essential imports, raising of quasi-sovereign bonds by public sector financial institutions, liberalising external commercial borrowing (ECBs) norms, he had said. Allowing oil PSUs to raise more funds via ECBs and trade finance, relaxation in non-resident deposit schemes, liberal FDI rules, schemes to promote exports are among other steps, he had added.
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