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Govt mulling gold-backed products to control surging imports

18 Dec 2012 Evaluate

In a move to curb demand for the precious metal, the government is mulling schemes like gold deposits, accumulation plans, gold-linked accounts and pension products. These gold-backed products will allow the investors enjoy benefits of investment in the metal without investing in the physical commodity.

In its Mid-Year Economic Analysis tabled in Parliament, the government said ‘gold backed financial instruments in the form of modified gold deposits and gold accumulation plans, besides gold-linked accounts and pension products linked with the precious metal are some measures being considered to reduce the attraction of a direct investment in bullion and jewellery in the domestic market and check a substantial rise in imports.’ By adding further it said gold-linked investments would have to be monitored to see whether the overall demand for the metal actually falls.

This move by the government is aimed to curb the gold imports, which is pushing up the current account deficit (CAD). India’s gold imports in 2011-12 financial year stood at $60 billion and the quantum of import was 1,067 tonnes. With imports touching a record high last year, the Reserve Bank too announced a slew of curbs on gold purchase and financing.

With gold imports contracting by 18.4% y-o-y to Rs 71,912 crore in the April-June quarter of the current financial year, the government is hopeful of recording a lower CAD this fiscal. India’s CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising oil and gold imports.

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