• Higher Import Burden: Rising prices increase the import bill for India.
• Widening Trade Deficit & CAD: Costlier gold imports raise foreign exchange outflow, worsening the current account deficit.
• Rupee Depreciation: Higher dollar demand for imports weakens the rupee.
• Inflationary Pressure: A weaker rupee makes other imports (oil, fertilizers) expensive, adding to inflation.
• Shift in Household Savings: Gold is seen as a safe asset, so savings move away from productive investments.
• Lower Economic Growth: Reduced financial savings limits capital for investment and development.
• Rise in Smuggling: High prices and import duties encourage illegal gold trade.
• Safe-Haven Demand Factor: Global uncertainty increases gold demand, further pushing prices up.

Do you think this price rise will impact India’s Current Account Deficit (CAD)? How exactly does it affect the CAD? Let’s examine this tomorrow.

Source: The Hindu