India warned to curb passion for gold
With 80pc of current-accounts deficit due to the metal, belt-tightening on bullion is a must
The finance minister of India, the world's largest buyer of gold, said yesterday the country must control its spending on the precious metal to balance trade and channel resources to more productive areas.
The comments of Palaniappan Chidambaram, who is on an official visit to Hong Kong, came as India increased its import duty on raw gold to 5 per cent of value from 2 per cent, and processed gold to 6 per cent from 4 per cent.
India and China are the world's two largest gold consumers, accounting for about 45 per cent of gold demand in 2012, according to the World Gold Council in London. India alone imported 223 tonnes of gold in the third quarter of last year, representing just under one-quarter of global demand.
About 80 per cent of India's current-account deficit is due to gold imports. While acknowledging that gold was by far Indians' most preferred avenue of investment, Chidambaram said the demand was putting a heavy strain on state finances.
"If we have gold [mines] in the country then we will have no current-account problems. But we have to import every ounce of gold," he said.
"We want to unfreeze the stockpiles of gold in India and bring it back into circulation. So part of the gold that is lying as idle stock will be unfrozen. Together with the increase of import duty, we hope the import of gold will be moderated."
India's domestic mutual funds, which offer gold-backed exchange-traded funds, will be allowed to deposit part of the bullion they hold with banks to boost availability for jewellery and gem-making.