Once upon an 8%
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As for gold imports, the government is using higher import duty as a devise to cut foreign exchange outgo on gold. This may have limited efficacy as it would encourage smuggling of gold and revive hawala.
A more lasting solution, really, is to revive growth and confidence in the economy so that investors move away from gold as a hedge against inflation. You can't really blame investors rushing to buy gold because most equity mutual funds have given returns of about 5 per cent annually over the past five years, a negative real return of 4 per cent. No wonder people have faith only in gold and real estate as means to protect their savings from inflation.
All these problems will automatically wane if confidence in the economy is restored by bringing growth back on track. Indians are fast losing the memory of 8 per cent GDP growth, such has been the psychological impact of stagnation accompanied by inflation these past few years. The forthcoming budget will simply have to do everything to revive growth. All other things will automatically fall into place.
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