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Journalism of Courage
Gold crash could be a turning point for India
With gold prices hitting a two-year low at 1,384 an ounce,Brent crude at a nine-month low and threatening to go below 100 for the first time since early July,and copper at a 12-month low,Indias macro picture looks better than it has for a long time. While Mondays fall in gold prices wont get reflected till the first quarter of FY14,data for the fourth quarter of FY13 looks better anyway,since there has been a 23 per cent fall in gold imports. Since gold imports account for around half of Indias current account deficit CAD in terms of value while FY13 CAD is estimated at 100 billion,gold imports are likely to be around 50bn a fall in gold imports is good news for the CAD and,therefore,for the value of the rupee.
None of this is to say that the CAD is no longer a problem,just that it is more manageable. Despite the 4 per cent hike in February exports,for instance,April-February exports were down 4 per cent year-on-year. And this,in turn,was due to a sharp reduction in the share of manufacturing exports India has just six items in the list of the top 50 global imports. Coal imports,thanks to environment bans and Coal Indias destructive monopoly,used to be 0.5 per cent of the GDP in the pre-Lehman years and are now around 1 per cent of the GDP. Even more worrying is the collapse in FDI of the 32.5 bn CAD in FY13s third quarter,just 2.5 bn was funded through FDI. The collapse in gold prices has given India much-needed breathing space but the imperative to increase exports and FDI flows remains urgent.
