Earlier this month, finance minister P. Chidambaram had warned that India’s appetite for imported gold was not sustainable; it had the potential to turn a threat to the country’s balance of payments (BoP) into a full-blown crisis. In short, the stern message was that Indians had to consume less gold.
The logic was simple: the share of gold in the country’s imports has risen from 6.9% in 2008-09 to 11.5% in 2011-12; in value terms, this insatiable appetite for gold cost the country $29.9 billion in 2008-09 and $56.5 billion in 2011-12—an increase of nearly 200%.
A few weeks later, the finance minister has delivered on the implicit threat: he has raised the import duty on gold to 6% from 4%. But the concern is that the demand will now be routed through illegal channels—smuggling. So what was a BoP problem may end up giving a fresh thrust to black money.