A long-term solution needs to be found for controlling gold imports; a bullion bank can help
The sharp surge in gold imports this fiscal once again turns the spotlight on the need to find alternative avenues to meet the insatiable demand of Indians for the yellow metal. With consumers on a buying spree after the second wave of the pandemic, gold imports between April and November 2021 was at a nine-year high of $33.23 billion — around 50 per cent higher than in the corresponding period in 2019-20. The last time gold imports crossed $30 billion in the first eight months of the fiscal year was in 2012-13. The Reserve Bank of India was then forced to take drastic measures to curb imports including hiking import duty sharply and laying down that 20 per cent of gold imported should be exported as jewellery. The RBI’s actions were prompted by current account deficit expanding to 4.8 per cent of GDP and the rupee depreciating sharply. The surging gold imports this year could also turn problematic as the trade deficit has expanded since September, hitting a multi-decade low in November 2021. The rupee is also under pressure due to the rising trade deficit as well as continued foreign portfolio outflows.
It may also be a good idea to set up bullion banks that focus on gold loans to retail and rural customers. The prime function of these banks will be to mobilise the surplus gold with citizens through gold monetisation schemes. They can also buy and sell gold in the bullion exchanges being set up in India and in the offshore business centre in GIFT City, thus imparting liquidity to these exchanges.