Atma Ram Kejariwal
CURRENT Account Deficit, (CAD) has become a matter of concern for the Central Government. Consumerism is one of the main reasons for reaching this situation. But surprisingly our present government feels proud and encourages this lifestyle. Persons in power have failed to realise that the present gloomy state of affairs with largest global economy, is due to this consumerism which is prevalent in the US.
Most of the times actions taken in panic results in arbitrary and non productive decisions. Main concern is not properly analysed and many potential result oriented decisions are sidelined or conveniently ignored.
Consider the case of an increase in customs duty on gold by 50 per cent, from 4 per cent to 6 per cent, in the month of January 2013. This decision was taken to discourage gold imports that have added to country’s Current Account Deficit (CAD). The decision might has been taken considering CAD, but the steep rise of 50 per cent has little impact considering the exchange rate of Indian rupee, INR, with respect to US $ which fluctuates much more than 2 per cent (rise in custom duty on gold in absolute term from 4 per cent to 6 per cent). It is also a fact that few policy makers are bent upon to artificially appreciate INR. These two objectives to discourage import of gold and appreciation of INR are opposite to each other as far as import of gold is concerned. It is also a fact that if increase duty on gold is increased steeply, it will increase illegal import of gold.
This will debar government from custom duty amount collection in proportion to illegal import quantity. A peculiar situation but a ground reality. Apart from fluctuation of INR, international prices of gold also fluctuate very widely, making increase in custom duty on gold a mockery. Crash in global gold prices in first fortnight of April 2013 has proved it. On the contrary to appreciation of INR, its depreciation will help the Finance Minister to discourage import of gold. Depreciation of INR will also discourage import of consumable products which have become status symbols, though this will have its other impact both good and detrimental. Presently almost all countries are allowing their currency to depreciate. Best way is to allow INR to settle on its own as per market forces.
Traditionally our country loves use of gold since ages. Our country was regarded as Sona ki chiria, ‘Golden Bird’. Gold is being bought across the country irrespective of region, religion, cast, gender on auspicious occasions, be it a festival or marriage or birthday of family member or such other occasions. It was never used for wasteful purposes or for entertainment. Moreover gold has value even after decades of its purchase; it acts as a hedge/cushion for hard times in life of a person or family. Even official gold reserves with Government of India have increased with time.
Now let us consider few more facts. Import of gold in the year 2001 was 672 MT and after 10 years i.e. in 2011 it was 878 MT. This is an increase of 30.65 per cent in 10 years and annual growth of mere 2.7 per cent. The population of our country grew from 1,016 millions in 2001 to 1210 millions in 2011, a growth of 19.09 per cent in 10 years and annual average growth of 1.763 per cent. Per Capita Income in terms of Purchasing Power Parity has increased substantially. In line with this growth, if gold consumption increases, it should not be a cause of concern.
It appears that other causes of increase in CAD are conveniently ignored. Consider import of electronic goods. As per statement given in the Parliament by Minister of State for Communication and IT Shri Milind Deora, India’s import of electronics goods like mobiles and cameras rose by almost 30 per cent to the tune of to Rs 1.57 lakh crore in 2011-2012, close to US 29 billion $, with present rate of exchange. The country imported electronic products worth Rs. 1.21 lakh crore in 2010-2011. With same growth rate the import for electronic goods for fiscal year 2012-2013 will be to the tune of Rs. 2.04 lakh crore or US 37.7 billion $. This figure can be compared with import of gold. Electronic goods like mobiles and cameras has little residual value after couple of months, forget year or decades, where as in case of gold residual value remains or increases even after decades.
These electronic goods also become a source of electronic waste when discarded from use. The country will face disastrous pollution problem because of this electronic waste. We have to find out solution to this electronic waste. Excise duty on mobile phones costing more than Rs. 2,000/- has been increased marginally in the last Union Budget, but this is more a step to increase revenue of government, not for reducing CAD. Increase in excise duty or even custom duty on mobile phones should have been in graded structure rather than one benchmark value of Rs. 2,000/-. Costly items should attract higher excise and custom duty, higher the cost, higher the duty. Other electronic products, preferred by neo rich should also be included.
All of us know that newer and newer, expansive versions of mobile phones, cameras and similar electronic items are flooding our market. In spite of very high cost of these items, there is a huge demand of new models and are sold as hot cakes. Thanks to new category of neo rich who has capacity and appetite to buy. This creates a possibility for over invoicing by the importers. If this is true, it results in worsening CAD situation and also creates black money. There is no such possibility of over invoicing in case of gold as almost all gold is imported through government agencies like MMTC and banks, mostly PSU banks.
It is not clear, if above stated import amount includes items such as lap tops, LCD and LED panels for TV and other display devices, set-up boxes for digital signals for TV broadcastings, etc. If not, the import amount including these and other such items will be huge and will be more than import value of gold in the country. The import growth of electronic products will remain +30 per cent for next couple of years and with this growth rate its import bill will surpass import bill of gold shortly.
It will be interesting to find out the efforts done by Government for technology transfer for these items. The volume of imports is very high and it should be viable to manufacture these items partially or completely in the country. Most of such items imported in our country originate from China. If manufacturing or assembly operations are viable in China, it should be viable in our country also. Everybody is for up gradation of technology but the speed with which TV broadcasting is being digitalised raises eyebrows as its import content is very high, close to 100 per cent. In a situation when CAD is alarming such initiatives of compulsory and forceful digitisation of TV signals can wait for some time. Since analog signals for TV signal transmissions are not permitted in many large cities, more and more cities are being added at a faster pace, even the poorest of poor in these cities are forced to install set-boxes though it put the family on financial hardship, but who cares?
Another factor which seems have been overlooked by the impact of indigenisation, technology transfer, etc. is potential of new job creation in the country and an increase in the GDP of the country. If we insist on time bound indigenisation, technology transfer, etc. the jobs created overseas based on our consumption story will shift to our country. Unfortunately such sincere efforts are missing. With present policy, we are helping other countries in job creation there and improve GDP of those countries, who export to us. The lack of interest in this direction is difficult to understand. It appears that exporters of these items from abroad has a strong and effective lobby which is insuring that our country continue huge imports of these items. Our efforts should be such that we should create manufacturing hubs for these items in our country which not only meets our requirement but also export large quantities to other countries.
(The writer is a mechanical engineer and gold medalist from University of Rajasthan).