Agencies, New Delhi
Observing that huge gold imports worth 20.25 billiion dollars constituted a substantial drain on the current account deficits (CAD), Union Finance Minister P Chidambaram today said the Government was left with no choice but to make the gold imports more expensive.
In a statement, the Finance Minister appealed to the people to moderate the demand for gold which leads to large imports of the metal. He said the government was considering the issue seriously Had the imports been one half of the current level, it would have meant that the foreign exchange reserves would have increased by 10.5 billion dollars, he added.
Reasoning out the causes for the CAD which had stood at 38.7 billion dollars or 4.6 per cent of the GDP, Mr Chidambaram said the exports sharply declined by 7.4 per cent, while imports marginally declined by 4.3 per cent leading to widening of the trade deficit.
The Finance Minister added that gold imports alone amounted to 20.25 billion dollars.
Increase in services exports of 4.2 per cent had partly made up for the gold imports and the surplus in services amounted to 29.6 billion dollars and remittances of 32.9 billion dollars, he said.
He said the positive aspect of widening gap of the CAD was that the CAD was financed without drawing on reserves. This was mainly due to adequate inflow of FDI worth 12.8 billion dollars and FII worth 6.2 billion dollars.
Besides this, external commercial borrowing amounted to 1.7 billion dollars and the net result was that the country had not dipped into the foreign exchange reserves. On the other hand, there was a marginal accretion of 0.4 billion dollars to the foreign exchange reserves, he observed.
While the CAD was ‘worrying’, it was within the country’s capacity to make good the CAD gap with the help of FDI, FII and ECB and hence it was of utmost importance to attract foreign funds to the country, he said.