The Reserve Bank of India has advised banks against selling gold coins to retail customers. Chidambaram also advised investors not to invest in gold, a day after hiking gold import duty to 8 per cent from 6 per cent. All this is done to discourage Indians from investing in yellow metal, the gold.
Gold imports by India, the world’s biggest buyer of bullion, surged to 162 tonnes in May — more than twice the monthly average in the record year of 2011. For the common man gold investment in the favourite. Here are the reasons why the indian Government does not you to further invest in gold.
1. Gold is India’s second most expensive import after crude oil. Crude is crucial for the Indian economy, but gold is a drain on resources. Rajiv Takru, financial services secretary, said that India could not afford the current levels of forex spending on gold imports.
2. Rising imports lead to current account deficit (exports minus imports), which is usually accompanied by depletion in foreign-exchange assets. The Reserve Bank has described high CAD as the biggest risk to Indian economy.
3. Having a currency at an all-time low is not a great advertisement for the government’s management of the economy ahead of elections. If gold imports start to fall, the government will have enough dollars to shore up the rupee.
4. Indians have for centuries relied on gold for savings. As banks have made few inroads into rural areas and consumer inflation is high, it remains the investment of choice for many. The government worries that large amounts of savings locked up in gold curtail liquidity and therefore investment in infrastructure and other drivers of the economy.
Source – NDTV