Import export indias forex scenario questions
Will reducing gold imports help the Indian economy? Import export indias forex scenario questions posted the following comment today, and I thought these are interesting questions that are relevant to today’s economic environment. I have few questions, haven’t come across post on these topics, Pls share links to post incase I have missed.
These are all big questions and a lot has been already written about them but I think it is worthwhile to look at them again, and today I’m going to take up the question on gold imports, why it is perceived to be bad for the Indian economy, and why they say that reducing gold imports will be better for the economy. How do we pay for imports? Indian Rupee for payments, they want us to pay them in an internationally accepted currency like the USD or Euro. How do we get US Dollars? There are three main ways in which India gets USD. The second one is also fairly obvious which is investment.
USD and that’s another way to get USD. The third way which is not very apparent is remittances. India’s total services exports, and this means that NRIs sending in money to India is also a big contributor to foreign exchange reserves. What do these two things tell us? These two things tell us that it is absolutely essential for us to have a steady flow of USD or other big currency coming in the country in order to finance our oil bill and pay for our other imports, if we run out of foreign exchange, we will be in big trouble because without oil, nothing else will function. India’s case, the CAD is becoming higher and higher with each successive month, and this means that India’s foreign exchange reserves are diminishing. One of the big factors worsening India’s CAD are the ever increasing gold imports.