Govt mulls gold import curbs to contain current account deficit

Amid rising concerns of widening current account deficit (CAD) due to rising international crude oil prices, the government is mulling ways to contain it, with one of the means being controlling the inward shipments of gold into the country.

“The government is looking at ways to manage the possibility of having the risk of higher current account deficit. Officials from finance and trade ministries are looking at matter,” a source in know of the matter told Moneycontrol.

The government is mulling ways to control import of gold as the yellow metal is the second highest commodity imported into the country, after crude oil, the source said.

CAD, a key measure of a country’s macroeconomic stability is an excess of sum of exports of goods and services, as well as income receivable over imports and income payable.

During April-December, 2017-18, CAD jumped to 1.9 percent of the Gross Domestic Product (GDP), as compared with 0.7 percent of GDP during the same period a year ago, mainly due to higher trade deficit and increased oil prices.

India’s trade deficit increased to USD 118.9 billion in April-December 2017 from USD 82.7 billion in the same period a year ago.

Going ahead, experts expect CAD to widen further if international oil prices continue to boil. Crude oil prices have risen to about USD 80 per barrel from about USD 55 in October, 2017.

A drop in drilling activity in the US and concerns over sanctions against Iran and production cuts by oil producing cartel Organisation of Petroleum Exporting Countries (OPEC) have raised prices. Experts believe that global oil prices will remain firm with OPEC, which accounts for around 40 percent of global production, extending production cuts through 2018.

“With the expectations of higher trade deficit, moderate FPI (foreign portfolio investment) inflows, we are expecting the CAD to go up to 2-2.5 percent of GDP in 2018-19,” CARE Ratings said in a report.

Similarly, ICRA’s Economist Aditi Nayar, expects the net petroleum, crude and products import bill to surge to USD 93 billion in 2018-19 from USD 70 billion in 2017-18, pushing up the CAD to USD 65-70 billion or nearly 2.4 percent of GDP in the current financial year.

“While a current account deficit of around 2.5 percent of GDP is not alarming, and India’s foreign exchange reserves are high, the level and direction of capital inflows as well as the outlook for crude oil prices, would crucially influence sentiment toward the INR,” Nayar said.

Besides, last month, the Reserve Bank of India (RBI) had also said in its monetary policy committee meeting said that despite being modest, India’s CAD is on rise.

While the current account deficit had ballooned to 6.7 percent of GDP in 2012-13, the Narendra Modi-led government consistently maintained the deficit to contain it under 2 percent of GDP annually.

Courtesy: Money control/ Image: pixabay.com