IAS Gyan

Daily News Analysis

Gold Imports

7th January, 2022 Economy

Figure 4: No Copyright Infringement Intended

Context:

  • India invested a record $ 55.7 billion in gold imports in 2021 and purchased more than double the tonnage of the previous year.
  • Quantitatively, India imported 1,050 tonnes in 2021, most of which was 10 years, well above the 430 tonnes imported in 2020. The fall in prices favored retail buyers, and there was a wedding backlog that was postponed when the pandemic first occurred.

 Link between gold and economy

  • Gold was used as the world's reserve currency for most of the 20th
  • The United States used the gold standard until 1971.
  • Demand for gold increases during inflation because of its intrinsic value and limited supply.
  • Gold cannot be diluted, so it can maintain its value much more than other currencies.

Currency Impact:

  • When a country imports more than it exports, the value of that currency declines. On the other hand, if a country is a net exporter, the value of that currency will increase.
  • For example, as the price of gold rises, the strength of the currency increases in countries that export gold or have access to gold reserves, as the country's total exports increase.

Gold in the context of the Indian economy

  • Jewelery and Jewelery Industry: India's jewelry and jewelery sector is one of the largest in the world, accounting for about 29% of the world's consumption. Almost 65% of jewelry made in India is handmade
  • Gold Mine: It brings important sustainable socio-economic development to India. The gold mining industry was of little importance in the country.
  • Gold Refining: The refining sector has seen a surge in new capabilities in recent years. India's total refining capacity now exceeds 1,450 tonnes.

Imports:

  • India's huge gold imports are also part of the current account deficit (CAD), as gold is the second largest part of the import bill.

Exports:

  • India is considered to play an important role in the economy as it is one of the largest exporters of gems and jewelery and contributes significantly to its foreign exchange reserves.

Unrecorded Gold:

  • Indian households may have accumulated approximately 24,000-25,000 tonnes of gold Related scheme

Gold Monetization Scheme:

  • This was introduced to mobilize fallow gold in homes and institutions, use it productively, and lower import prices.

Sovereign Gold Bond (SGB) Scheme:

  • Bonds are issued by the Reserve Bank of India on behalf of the Government of India.
  • The bond has a term of 8 years and has an option to terminate from the 5th year.
  • Its objective is to reduce demand for physical gold by shifting a part of the gold purchase by people to invest in gold bonds.