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Economic Affairs Balance of Payments

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Which of the following is/ are the reason (s) behind RBI's increase in import duty on gold?

1. To protect the sliding rupee against dollar.

2. To contain the widening CAD.

Select the correct answer using the codes given below.

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Second option is correct.

Recently the RBI has increased import duty on gold. The aim was to contain the widening CAD.

The government has recently raised the import duty on gold and platinum by 2 per cent to 6 per cent, the second such increase in less than one year. The move is aimed at discouraging gold buying and controlling the ballooning fiscal deficit. The objective was to curb the widening current account deficit.
A current account deficit is not always bad for a developing country, but in case of India the deficit has reached unmanageable proportions. The widening current account deficit has increased India’s need for foreign capital inflows and evoked memories of the 1991 balance of payments crisis, when the Reserve Bank of India (RBI) sent 47 tonnes of gold to Europe as collateral for a loan to avert a sovereign default.