A household's defence against falling rupee and inflation is to move money abroad by importing gold.
When I began researching why we count gold on the current account and not the capital account, I was simply seeking an answer to what looked like an illogical classification of a metal we know to be an asset. And as it is with most things, once you start pulling at a thread, sometimes you get surprised at what sits at the other end. So here is what I finally find. The question (asked in my previous column http://bit.ly/1a2YHp8) is this: why do we count gold imports in our current account and not the capital account? The question has been triggered by the flak households are getting for causing India’s current account deficit to get out of control due to their lust for the yellow metal. The first answer seems to be convention—we use international standards to place items in one account or the other. The logic of placing gold in the current account is that transactions in goods, even those that may have investment value, are included in merchandise trade. And that since gold does not go to work but sits in lockers and vaults – it does not qualify as an asset. Therefore, the metal’s classification as a traded “good" and not an “asset". And, therefore, its placement in the current account.