The RBI needs to remember that unless global crypto norms get established as suggested by the PM, several of its measures may have a negative impact on domestic jobs, revenue and economic growth.
In times of crises, people in India turn to gold, and this is what they did soon after the 1962 aggression by the PLA took place. The austere Finance Minister of India, Morarji Desai, came up in 1963 with what he thought would be a solution to the swelling imports of gold. Ban import of gold completely. For millennia, the people of the subcontinent had been purchasers and holders of gold, often for use as a last resort in case times turned sour. To expect them to stop buying gold was a leap too far of faith in the potency of government edicts in a sprawling country. Till Morarji’s ban, India had not just been an importer but an exporter of gold, often in the form of jewellery. More than two million citizens were directly or indirectly involved in the gold business. Overnight, they lost their occupations, and less scrupulous individuals took their place in the now illicit gold trade. It was from India’s 1963 Gold Ban that Dubai began its ascent as a major trading hub. Sending gold to India through a medley of ways became a lucrative business in the sheikhdom. Among the undesirable side effects of the banning of gold was the appearance of the mafia, in the shape of illegal importers of gold from Dubai to India. Smuggling of gold remained a profitable business in India until 1992, when Prime Minister Narasimha Rao once again legalised the trade by scrapping the ban. During the UPA period, Finance Minister Chidambaram imposed a 10% duty on imports of gold. After that, smuggling once again became viable, and illegal operators entered a boom period. Not surprisingly, recorded gold imports fell drastically and collections from the new tax were small. Business in gold flourished, but illegally and in cash, with the government getting no revenue out of such business. An import duty on gold in excess of 5% promotes not revenue but smuggling of the precious metal. Dubai’s rise as a trading power dates back to the banning of gold imports in 1963. Had Narasimha Rao’s policy of permitting the gold trade not been reversed by the UPA, by now India would have been the global hub of the gold trade, and would through its exchanges exert a powerful effect on not just supply but price of the precious metal. Unsustainable taxes and overzealous regulation only succeed in driving away legal activity to other shores and inflating the illegal economy.