GOLD IMPORT-More Is Not Better

back that as much as 91 tonnes of gold have been imported officially in the current financial year so far by non-resident Indians (NRIs) and Indians returning to the country on which it has collected Rs 206 crore in foreign exchange as import duty. In a recent speech to an NRI audience, the minister of state for finance expressed satisfaction that the response to the gold import scheme had far exceeded the government's expectation of import of 35 tonnes of gold in the full year. The decision to permit legal import of gold had been announced by the finance minister while presenting the budget for 1992-93 with the objective of discouraging smuggling of gold and thus reducing the demand for foreign exchange in the unofficial market and narrowing the difference between the exchange rate of the rupee in the 'havala' market and the officially-recognised free market created through the introduction of the liberalised exchange rate management system (LERMS), The question that arises immediately is whether the decision to permit import of gold legally has actually reduced gold smuggling. Available information suggests that the total inflow of gold in 1992, taking legal import and smuggling together, far exceeded the levels in recent years, estimated at 150 tonnes in 1991, 180 tonnes in 1990 and 173 tonnes in 1989. Experts who keep track of the flow of gold into India from Dubai are agreed that there was a marked rise in the demand for gold in India in 1992, for which the bigger agricultural crop may be only a part of the explanation. The more important factor, according to them, is the scrapping of the Gold Control Act which stimulated demand for gold for investment and for gifts. Expectations of an attractive gold bond scheme hinted at by government spokesmen from time to time also contributed to the investment demand for gold. On the other hand, the legal gold import scheme together with the end of the Gold Control Act have definitely made the enforcement agencies' task of detecting smuggled gold very much more difficult. Total gold imports in 1992 probably exceeded 200 tonnes as a result. (In any case, even the so-called legal imports are to a large extent financed by smugglers.) At the prevailing international price, 200 tonnes would have cost the country $ 2.25 billion in foreign exchange or Rs 6,750 crore, nearly thud the annual current account deficit. In addition, an estimated 1,800 tonnes of silver is being smuggled into the country, costing about $ 250 to S 300 million a year. The sources of finance for gold and silver smuggling are the 'havala' market, the smuggling out of consumer goods like rice, edible oils and sugar, and supplies of narcotics from India