Economic Survey 2013: Curbing gold imports will help reign in current account deficit

NEW DELHI: The Economic Survey 2013 has recommended focusing on curbing imports in order to control a ballooning current account deficit (CAD). According to the survey oil prices should be more market determined to reign in the CAD.

The survey says that curbing gold imports will help the government reign in the deficit and has noted that the room to increase exports in the short run is limited.

While the government has "thrown sand in the wheels" by raising the tariff on gold from 4 per cent to 6 per cent in order to discourage imports and tried to unlock passive gold holdings through gold loans, gold purchases are likely to come down primarily when households see attractive alternative investment avenues, it added.

Over the last few months, the government has taken several steps to boost dollar inflows like de-regulating NRI deposit rates, relaxing ECB norms, increasing FII debt limits, liberalisation of FDI and postponement of GAAR and higher duties on gold.

Meanwhile, high import of gold is adding to the CAD despite efforts by the government to check import of the precious metal. Gold accounts for second largest import in value terms after oil.

CAD which occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers, had touched a record high of 5.4 per cent of GDP in the July-September quarter.

The Reserve Bank of India has also expressed concerns over high CAD and said that a high CAD will threaten macroeconomic stability and impact growth.

"Large fiscal deficits will accentuate the CAD risk, further crowd out private investment and stunt growth impulses," RBI had said in its third quarter monetary policy review.

Earlier this month, Citigroup said that India's current account deficit for financial year 2013 is likely to rise to $87.9 billion or 4.7 per cent of GDP as against $76 billion or 4 per cent of the gross domestic product estimated earlier.

Citigroup revised CAD estimates for financial year 2013 to 4.7 per cent from 4 per cent of GDP after incorporating the latest trade and GDP data, and said CAD is likely to stay elevated in financial year 2014 as well.