India's widening current account deficit (CAD) touched a historic high of 4.7 per cent of GDP in 2012-13, mainly due to rising imports of gold and petroleum products. Short-term measures of throttling supply and simultaneously raising customs duty achieved the desired result.

While the short-terms measures addressed the CAD, this is the time to consider long-term sustainable measures to address the growing burden on CAD. Any such measure, however, must strike a balance between sustaining domestic manufacturing industry, essential for India's economic growth and refined bullion imports.

Experts say that the new government must consider long-term measures to reduce the import of gold bullion and encourage the development of world-class domestic refining and manufacturing facilities concurrent with setting higher compliance standards on all factors in the gold business. Until recently there was no high quality gold bullion being refined in India. Therefore, whether for investment or manufacturing jewellery, the only recourse was to import foreign gold bullion bars to India.

India is now home to the world's most modern precious metals' refining and manufacturing plant, equipped with state-of-the-art technology throughout all production processes, as well as with the most advanced environmental infrastructure and safeguards that meet the most stringent regulatory standards. Recently MMTC-PAMP India (a public private partnership) became the country's first refinery to receive international LBMA (London Bullion Market Association) accreditation as a 'Good Delivery' gold & silver refinery which has the potential to transform the way bullion is dealt with in India.

Similarly, despite the government's constant encouragement to the banks to monetize the public's gold holdings, banks have not had any success in doing so, because of the lack of world-class infrastructure to refine and monetize this gold.

James Jose, Founder Secretary, Association of Gold Refineries & Mints, supports the long-term solution to India's CAD problem and gold imports by developing domestic refining and manufacturing facilities in the country. According to him, this will reduce dependence on international suppliers since domestically refined world-class gold bullion would be available within the country.

"It will enable local jewelers to exchange their scrap jewelry against world class gold bullion, thereby reducing direct gold bullion imports. Importing dore for refinery feedstock results in substantial economic, technical and income tax revenue benefits for the country as a whole and creates job-opportunities. Furthermore, banks will be able to provide efficient and risk-free collection systems to monetize some of the public's gold holdings, which will result in significantly reducing annual imports over a period of time. Thus, developing refining and manufacturing facilities in the country will also go a long way in enhancing India's reputation in the international community while addressing the CAD problem," he says.

Source:- economictimes.indiatimes.com