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Import of Gold for Non-Monetary Purposes
One of the benefits of devaluation will be that even if India continues to receive the same quantity of smuggled gold as before devaluation, it might still save substantially in foreign exchange. Nevertheless, the country would continue to incur a sizeable cost purely because of the fact that India is prepared to import only smuggled gold for non-monetary purposes.
Is there an alternative to importing smuggled gold?
It is suggested in this paper that there is an alternative; a simple one that is quite practical too.
[The views expressed here are entirely the author's own and should not in any way be ascribed to the organization with which he is, at present, associated.]
INDIA is today among the largest consumers of gold for non monetary purposes. Strangely, this is so even though import of gold for non mone tary purposes has been legally forbid den for over 35 years. The fact is that the country has actually been importing large quantities of gold all through this period and before. Conservative estimates place the smuggling of gold in recent years at around 100 million grams a year, which at the current international price of gold is worth $112.5 million.
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Before the devaluation of the rupee on June 5, 1966, the 'official' rupee price of gold was Rs 53.60 for 10 grams. In consequence of the devaluation by 36.5 per cent, the 'official' rupee price of gold goes up from Rs 53.60 to Rs 84.40 for 10 grams. Immediately before devaluation, however, the 'free market' price of gold in India was Rs 145 for 10 grams; it went up to Rs. 170 for 10 grams (i e by 1.7 per cent) soon after devaluation. Subsequently, the free market price of gold started coming down and within five weeks of devaluation it is reported to have come back to around the pre-devaluation price.
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