In 1991, India flew out a planeload of gold to borrow foreign exchange. History changed colours on Tuesday when the Reserve Bank of India said it had bought 200 tonnes from the International Monetary Fund (IMF) – from which it borrowed that year to tide over a severe balance of payments crisis.
The RBI now has the tenth largest gold reserves in the world after spending $6.7 billion (about Rs 32,000 crore) after buying nearly half of the 403.3 tonnes put on sale by IMF, which shed one-tenth of its yellow metal reserves to help lending to poor countries.
The proportion of gold as part of India’s foreign reserves of $285.5 billion had fallen over the past decades to a mere $10.3 billion. The latest purchase will lift its share of gold holdings from near 4 per cent to about 6 per cent, much less than most of the developed world but four times China’s share.
As Finance Minister Pranab Mukherjee prepared to leave for a G-20 conference of elite economies, he said the gold purchase was “normal”.
“My advice to the governor of RBI would be…if you are in a position to buy gold buy it but do not put too much emphasis on it (buying),” he said.
RBI said in a statement that the deal was an off-market transaction executed between October 19 and 30 at market prices. Analysts say India could also gain more voting power in the IMF.
“Purchase of gold is RBI’s move at stabilising the currency. It is trying to shore up rupee basket with gold, similar to what China was trying to do with purchase of 400 tonnes of gold recently,” said Vijay Bhambwani, CEO of market analysis site BSPLIndia.com.
India’s purchase was among factors that boosted gold in the world market on Tuesday.
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