Increasing demand for gold in India may have a profoundly negative effect internationally, writes World Review author Barun S. Mitra.
“Indians are estimated to privately hold, in homes and temples, between 20 – 25,000 tonnes of gold, valued at more than US$1 trillion, or 50-60% GDP,” he says. “India is a major gold consumer, so continued demand would push up the international price of gold further,” he writes.
“This could fuel speculation in the commodity market, put pressure on currencies, raise the prospect of inflation and raise interest rates, which could affect consumer confidence and slow investment.”
In January, the government raised the import duty on gold from six to eight per cent over concerns that high demand for the metal is fuelling the country’s deteriorating current account deficit.
The rise in import duty is also a signal to domestic and international markets that India may not be able to tackle the fundamental challenges of fiscal deficit and inflation related to its economy.
World Review author Barun S. Mitra is a writer and commentator on current affairs on a range of issues from economic development, environmental quality and political participation. He is the founder and director of the Liberty Institute, www.InDefenceofLiberty.org, a non-profit, independent public policy research and advocacy organisation, based in New Delhi, India.
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