FM: Discourage customers from buying gold

FM: Discourage customers from buying gold

Govt already hiked the import duty on yellow metal to 8% Mumbai (PTI): A day after government raised import duty on gold to 8 per cent, Finance...

Govt already hiked the import duty on yellow metal to 8% Mumbai (PTI): A day after government raised import duty on gold to 8 per cent, Finance Minister P Chidambaram on Thursday said the surging imports are unsustainable and advised the banks to tell customers not to invest in the precious metal. "Banks have a role to play in dampening the enthusiasm for gold...I would urge all banks to please advise their branches that they should not encourage their customers to invest in or buy gold", he said while addressing the annual general meeting of the Indian Banks' Association (IBA).
Reminding that the Reserve Bank has already advised banks not sell gold coins to retail customers, Chidambaram said, "I hope a day will come when we regard gold as any other metal, it just shines a little more than copper or bronze." In view of the spiralling gold imports putting huge pressure on current account deficit (CAD), the government last night hiked the import duty on gold, besides platinum to 8 per cent, up by 2 per cent. This was the second hike in the duty within six months. The government had last raised the import duty on gold from 4 per cent to 6 per cent in January. Expressing concern over rising CAD, Chidambaram said, "the gold imports have been a major contributor of the CAD. With the sharp drop in gold prices, millions were happy. I am afraid I was not among the millions. I told the (RBI) Governor that the drop in gold prices internationally is a bad news for India. Our fears came true." The gold import surged in April and May following fall in prices in the international market. "In April we imported 142 tonnes of gold, in May we imported 162 tonnes of gold. Last year's monthly average was 70 tonnes of gold, this year in the first two months, the average is 152 tonnes of gold", he said, questioning "how do we sustain? How can we finance these gold imports." Chidambaram further said that in view of the surging gold imports, both the RBI and government had no option but to take stronger measures. In order to check gold import, the RBI had put in place regulations under which gold can only be imported on a consignment basis to meet the genuine demands of jewellery exporters. It has also increased margin money to 100 per cent. The Finance Minister also expressed confidence that India would be able to finance its CAD from foreign investments without touching it forex reserves. "I hope that in future also by encouraging foreign investment we will be able to finance the CAD without drawing down on our foreign exchange reserve," he said. He was also hopeful that with fall in inflation other financial instruments will become attractive and "divert some of the disproportionate attention in gold to fixed income instruments".
`fall not a cause for alarm
Unfazed by the rupee touching psychological level of 57 against the US dollar, Finance Minister P Chidambaram said there is no cause for alarm and the currency will soon find its stable level. "There is no alarm bell on the Rupee front. I think rupee will soon find its stable level. (Foreign) Inflows are good in past two months, it was extremely good," he said on the sidelines of an event here. In the past eight days, rupee has weakened by over 150 paise against the dollar, amidst concerns of withdrawal of stimulus by the US administration. It moved in a range of 56.89 per dollar and 57.00 per dollar during the morning trade on Thursday.
Pass on rate cut benefit
Chidambaram asked banks to pass on the RBI's rate cut benefit to both retail and corporate borrowers. "In fact, the RBI has already cut the repo rate by 125 basis points since early 2012, with commercial banks cutting rates by only 30 basis points over the period," he said. Bank licences before Mar '14 Finance Minister expressed hope that some new bank licences would be issued before March next year. "RBI has released guidelines for licencing of new banks and I hope that some banks will be licenced before the end of the financial year," he said. The entry of new banks, rapid expansion in number of branches and a more spatial distribution of location of banks will all lead to greater financial inclusion, he said. "We need more banks, we need more branches. We need them in the small towns, in the block headquarters, and the backward regions of the country especially the North Eastern states and the hill states," he said.
Why curbs on gold imports?
Widening trade deficit: Rising imports lead to current account deficit (exports minus imports), which is usually accompanied by depletion in forex reserves, which is described (high CAD) as the biggest risk to economy. Rising import bill: Gold is India's second most expensive import after crude. While oil accounts for 35 per cent of the import bill, gold contribute 11 per cent. Although crude is crucial for the economy, gold is burden. Terming gold imports as 'wasteful expenditure', Rajiv Takru, Secretary, said that India could not afford the current levels of forex spending on gold imports. Pressure on rupee: The rupee is extremely close to its all-time low of 57.32. Currency lingering at it all-time low level is never an appealing for the government's performance especially ahead of elections. On the other, if gold imports fall, the government will have enough dollars to shore up the rupee.
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