From The Indian Express, New Delhi
Sunday, December 2, 2012
MUMBAI -- Two former governors of the Reserve Bank
of India warned Saturday against taking tough measures to rein in gold
imports -- a major reason for the persistently high current account deficit.
The chairman of the Prime Minister's Economic
Advisory Council, C. Rangarajan, said steps like
banning gold imports would only push up its smuggling.
Rangarajan, who served as RBI governor, said there are already indications that
illegal shipments of the precious metal have gone up in the last three months
after the hike in the excise duty.
"That is an indication of how much gold is
being smuggled in. I would say to some extent we should dissuade people from
holding an asset that does not give a rate of return. However, you can't go
beyond a particular point," Rangarajan said
here at a function organised by the Indira Gandhi
Institute of Development Research, an institution set up by the RBI.
Former governor Y.V. Reddy said, "If Mercedes
Benz and aftershave lotion can be imported, why not gold? It is both an
investment and consumption good. Many people seem to mistake that it is only
a hedge against inflation. There is a demand for it. It is being imported. If
you can, try to stop it."
The RBI Governor D. Subbarao
said the central bank is "concerned about gold as means of saving
because it blocks off savings."
"We are concerned about gold ... lending
against gold by non-bank finance companies because of financial stability concerns.
We have been concerned about gold from an external management perspective
because of the pressure it puts on the current account or the capital account
depending on your account for it," Subbarao
On growth and inflation, Bimal
successor and Reddy's predecessor, said, "There are periods when growth
is more important and you take policy measures to boost it. There are periods
when you have to control inflation because that is the dominant public issue.
So there will be periods when you take measures, however harsh they are, to
Reddy added household savings, which was an
achievement until recently, is now the most critical challenge for the
future. "The behavior of household savings indicates that they do not
have faith in financial markets except banks. It is a bad sign."
Rangarajan said, "If what has happened in the three-year period of decline
is reversed either because of a fiscal consolidation program or because of
inflation coming down, it is possible to get back ... if not the 9-percent
but the 8-percent rate of growth."