india is buying gold like crazy, what is modi thinking? | jingniangguan
2024-09-23
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▲data map: a salesperson displays gold bracelets in kolkata, india. photo/ic photo
according to cailianshe, data released by the indian government recently showed that india's gold imports in august reached us$10.06 billion, setting a record high in terms of amount. preliminary estimates show that this is equivalent to importing 131 tons of gold, which is the sixth highest in history in terms of monthly import volume.
in the first seven months of this year, the gold reserves of the indian central bank increased by 42 tons of gold, which is more than twice the amount purchased in 2023. the gold imported by india in august was more than six times the amount of gold purchased by the indian central bank last year.
another comparable data is that india's total imports in august were $64.36 billion, and gold imports accounted for one-sixth of the total, which is obviously not a normal structure. what is the reason for india's crazy purchase of gold?
reduce import tariffs on gold and silver
the main stimulus for india's gold buying spree was the reduction in import duties on gold and silver in july. at the end of july, india reduced the import duties on gold and silver from 15% to 6%, while reducing the import duties on platinum and palladium from 14.35% to 5.35%.
india has significantly reduced its gold and silver tariffs, which naturally reduced tariff revenue. when india raised its gold import tariff from 13% to 15% in 2019, its idea was to increase tariff revenue. but now it has reversed its past thinking and reduced the gold and silver tax by 9 percentage points at once. the reason is that india's rampant gold smuggling has caused india to lose more tariffs.
india's gold demand is mainly met by imports. according to previous statistics from the world gold council, imported gold accounts for 86% of india's gold supply, recycled gold accounts for 13%, and domestically mined gold accounts for only 1%.
mined gold is scarce and gold taxes are high, so many indians rely on buying smuggled gold to meet their consumption needs.
india is the world's leading gold smuggler. smuggling gangs mainly buy gold from the great lakes region of africa (countries around the east african rift valley). smuggled gold is processed in africa and then shipped to dubai, where it enters india by bribing port officials and bypassing ports.
in recent years, india has uncovered several major gold smuggling cases at airport customs, but has failed to curb the wave of gold smuggling.
most of the gold smuggled into india is hidden among the people, and some is smuggled from india to other countries. it is estimated that about one-third of the world's gold output goes into india each year, but the indian government's gold reserves have not increased significantly. the indian government's gold reserves may only be 2%-3% of the private sector's holdings.
india drastically cut import duties on gold and silver at the end of july in the hope of reducing the huge profits from gold smuggling. the timing of india's reduction in import duties on gold and silver coincided with the fed's expected rate cut, which led to an unprecedented gold buying spree in india in august.
▲data map: the indian jewelry exhibition held in new delhi, the capital of india. photo/xinhua news agency
cheer for modi's 3.0 infrastructure plan
india's large-scale gold imports have another more important purpose, which is to add some confidence to the modi government's 3.0 economic plan.
modi began his third term as prime minister in june this year, tying nehru's record. during modi's first term as prime minister, he launched the "clean india" construction plan, the core of which was to expand infrastructure and sanitary material production capacity, including building toilets. this plan was relatively successful.
during modi's second term as prime minister, he proposed the "make in india" plan, with the goal of increasing the proportion of manufacturing in gdp from 15% to 25% by 2025 and making india a "global manufacturing center" by 2030. to achieve the goal, india has vigorously built road networks, railway networks, ports and digital infrastructure, which has driven the growth of india's economy. however, the proportion of india's manufacturing industry in gdp has not increased, but has dropped to around 13%.
now in his third term as prime minister, modi has put forward the slogan of "shining india". the core content is to focus on infrastructure. in the next two years, 44.4 trillion rupees will be invested in infrastructure, which is equivalent to the total investment in india's infrastructure in the previous 10 years.
the huge infrastructure plan means huge financing needs, but the modi government lacks confidence. from 2000 to 2022, india's fdi (foreign direct investment) inflows increased 20 times, with a cumulative inflow of us$847.4 billion, an average of about us$40 billion per year. so far this year, india's foreign investment has plummeted to only us$2.6 billion. this makes the modi government's plan to attract us$100 billion in foreign investment each year a joke.
the plunge in foreign investment in india is closely related to india's notorious business environment. because foreign investment is seen as a "pig-killing scheme", india has earned the title of "foreign investment graveyard" in recent years.
on the other hand, the credit of the indian rupee is not good. the "demonetization order" carried out by the modi government in 2016 to combat illegal capital flows has already reduced the credit of the rupee. the recent sharp fluctuations in the indian rupee exchange rate have also revived doubts about the indian economy.
under such circumstances, india imports a large amount of gold with the intention of stabilizing the rupee exchange rate and endorsing modi's 3.0 infrastructure plan.
▲the picture shows modi attending the swearing-in ceremony of the prime minister at the presidential palace in new delhi, the capital of india, on may 30, 2019. modi started his second term as prime minister on that day. photo/xinhua news agency
dealing with western dissatisfaction
although india is now the world's fifth largest economy, the credit of the indian rupee and its share in the international settlement system are far from matching this ranking.
in order to promote the internationalization of the indian rupee, the modi government has come up with many ways. less than five months after the outbreak of the russian-ukrainian conflict in february 2022, the reserve bank of india launched an international trade rupee settlement mechanism, allowing trading partners to open special accounts. taking advantage of this channel and the opportunity of western sanctions on the russian ruble, india used rupees to pay for the purchase of a large amount of russian oil, and the bilateral trade volume between russia and india exceeded several times that before the russian-ukrainian conflict. however, due to the lack of credit of the indian rupee in the international market, the large amount of rupees accumulated in russia is like waste paper.
recently, india has actively promoted a conditional brics settlement mechanism.
india's multi-bet position has not achieved the expected benefits, but has instead aroused suspicion from the united states and other western countries. some signals indicate that this suspicion is turning into a clearer warning.
on september 4, the financial times reported that trade between russia and india is not limited to energy, but also involves dual-use products such as electronic products and production facilities. the report said that russia hopes to ensure the security of the supply of key electronic products in wartime through india, a channel hidden outside the us and western governments.
on september 6, the united states announced sanctions on two indian shipping companies due to india's imports of russian liquefied natural gas.
from this perspective, india's crazy purchase of gold may also be intended to respond to the dissatisfaction of the united states and other western countries.
written by xu lifan (columnist)
editor/ chi daohua
proofreading/ wang xin
