PMEAC sees gold imports declining by 20% in current fiscal

Gold imports are likely to decline by nearly 20% to $45 billion and will help in lowering the Current Account Deficit (CAD) to 4.7% of GDP in the current fiscal, the PMEAC said today.

"There is greater uncertainty with regard to gold imports ... We expect some moderation in the level of import of gold and silver imports during 2013-14 that would come down to $45 billion from $56 billion in 2012-13," Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said.

He said that financial assets need to be made more attractive in order to bring down the demand for gold as hedging instrument against inflation.

In today's market gold prices closed at Rs 27,600 per 10 gms.Gold prices had touched the all-time high of Rs 32,975 per ten gms on November 27, 2012.

The government has taken a number of steps to curb gold import like hiking duty and increasing domestic availability by linking gold ETFs with gold deposit schemes.

The moderation in gold imports would help bring down the CAD to 4.7%, from 5.1% of GDP in 2012-13.

However, in value terms the CAD would be higher at $100 billion, as compared to $94 billion last fiscal.

Rangarajan, however, expressed confidence that the government would be able to finance the CAD of 4.7%.

"So far financing of CAD has not been a problem. Even in 2012-13 we had sufficient capital flows which covered CAD ... The government will be able to finance CAD even in the current fiscal," he said.

"To ensure that CAD is comfortably financed, capital inflows will need to be encouraged, where necessary procedures streamlined," he said.

While net FDI inflow in the current fiscal is expected to be $24 billion, FII inflow is likely at $18 billion during the period, he added.

However, the PMEAC projected the oil import bill to rise by 14% to $125 billion in the current fiscal partly due to rise in global fuel price.

Replying to a question in the Rajya Sabha, Minister of State for Finance Namo Narain Meena said the widening of CAD could be attributed to both international and domestic factors.

Subdued economic and financial conditions due to eurozone crisis led to weak external demand for India's exports, Meena said.