Gold Imports in 2021

In Context

• India splurged a record $55.7 billion on gold imports in 2021 buying more than double the previous year’s tonnage.
  • In volume, India imported 1,050 tonnes in 2021, the most in a decade, and far more than the 430 tonnes imported in 2020.

• A price drop favoured retail buyers and pent-up demand emerged for weddings that were delayed when the pandemic first hit.

Gold & Economy Linkage

• Gold was used as the world reserve currency up through most of the 20th century. The United States used the gold standard until 1971.
• The demand for gold increases during inflationary times due to its inherent value and limited supply. 
  • As it cannot be diluted, gold is able to retain value much better than other forms of currency.
• Affect on Currency: When a country imports more than it exports, the value of its currency will decline. On the other hand, the value of its currency will increase when a country is a net exporter. 
  • Thus, a country that exports gold or has access to gold reserves will see an increase in the strength of its currency when gold prices increase, since this increases the value of the country’s total exports.

Gold  in the context of the Indian Economy

• Gems and jewellery industry: The gems and jewellery sector in India is one of the largest in the world and contributes to about 29 per cent of global consumption.
  • Nearly 65 per cent of jewellery manufactured in India is handmade
• Gold mining: It provides significant sustainable socio-economic development to India. The gold mining industry has largely been insignificant in the country.
• Gold refining: The refining sector has seen a sharp rise in new capacity in recent years. India’s total refining capacity is now above 1,450 tonnes.
• Imports: India’s huge gold imports is also partially responsible for the current account deficit (CAD) since the second largest part of the import bill is gold.
• Exports: India is one of the largest exporters of gems and jewellery and the industry is considered to play a vital role in the economy as it contributes a major chunk to the total foreign reserves of the country. 
• Unaccounted Gold: Households in India may have piled up around 24,000-25,000 tonnes of gold

Related schemes 

• Gold Monetization Scheme: This was launched to mobilize gold lying idle in households and institutions and put them to productive use and reduce the import bill.
• Sovereign Gold Bond (SGB) Scheme: The bonds are issued by the Reserve Bank of India on behalf of the Government of India. The tenure of the bond is 8 years with an exit option starting from the 5th year onwards.
  • Its objective is to reduce demand for physical gold by shifting a part of the gold purchase by people to invest in gold bonds.

Source: TH