Gold could act as insurance against India's 22% external debt to GDP : RBI Governer

NEW DELHI (Scrap Monster): India has large amount of gold which if the need arises will be used to repay external debts, said Mr.Raghuram Rajan, Governer, Reserve Bank of India (RBI) while addressing the International Monetary Fund (IMF) Meet. According to latest data, the country’s external debt to GDP is around 22%.The country has sufficient reserves to make at least three quarterly repayments. As a last resort, the country could use its gold to repay the debt.

Mr.Rajan also expressed confidence that the current account deficit (CAD) can be contained at $70 billion this fiscal. However, official data indicated that the CAD for the first quarter had risen to 4.9% of the GDP. Higher gold imports and slowdown in exports were among the main factors that pushed CAD to record highs. The series of measures unleashed by the RBI and the Finance Ministry would help shave off the CAD in the coming quarters.

India has zero percent chance of availing further loans from the IMF at least for the next five years. The country aims to achieve CAD levels of 2 to 2.5 % going forward. Also, the Indian government’s debt to GDP is much lower than that of the industrialized nations. The huge amounts of gold reserves would insure the country against any default in debt repayment.

According to data compiled by the World Gold Council (WGC), India’s total gold reserves stood at 557.7 tonnes as of August. India is the world’s 11th largest player in terms of official gold reserves.