Relevance: GS-3 (Indian Economy, Macroeconomics, & Resource Mobilization) |  Source: The Indian Express

1. The Core News: What is the Change?

To protect the Indian economy from external shocks, the Union Government has significantly increased the cost of importing gold and silver.

• The Math: The Basic Customs Duty was raised from 5% to 10%.
• The Cess: The Agriculture Infrastructure and Development Cess (AIDC) was raised from 1% to 5%.
• Total Impact: The effective tax on these precious metals is now 15%.
• Austerity Measure: Alongside this, the government has banned sugar exports to control domestic prices and inflation.

2. The Macroeconomic Trigger: Why Now?

This hike is a defensive move to maintain Macroeconomic Stability during a global crisis:

• Crude Oil Shock: With West Asia tensions, oil prices have crossed $100/barrel. Since India imports 80% of its oil, this drains our US Dollar reserves.
• The OMC Crisis: Oil Marketing Companies are losing ₹1,000–₹1,200 crore daily. To avoid a massive Fiscal Deficit, the government must stop the dollar drain from other “non-essential” items.
• Currency Pressure: The heavy demand for dollars has pushed the Rupee to a historic low of 95.71 per USD.

3. Administrative Logic: Gold as a “Dead Asset”

For a UPSC student, it is important to understand why the government targets gold during a crisis:

• Forex Drain: Buying gold requires paying in US Dollars, which weakens our Foreign Exchange Reserves.
• Non-Productive Investment: Unlike importing machinery (which creates jobs), physical gold is considered a “dead asset” because it sits in lockers without helping the economy grow.
• Balance of Payments (BoP): By making gold 15% more expensive, the government artificially reduces demand to prevent a full BoP crisis.

4. Value Addition: Concepts for your Answers

• AIDC (Agriculture Infrastructure and Development Cess): Revenue from this cess is not shared with the States. The Centre keeps the entire fund to build rural and agricultural infrastructure.
• Imported Inflation: When the Rupee weakens, everything India imports (like fertilizers or electronics) becomes expensive in local currency. This “imported inflation” forces the RBI to keep interest rates high.
• Sovereign Gold Bonds (SGBs): The government encourages citizens to buy “paper gold” (SGBs) so they can earn from gold prices without the country having to import physical metal.

5. The Way Forward

While the 15% duty helps in the short term, high taxes often lead to gold smuggling.

• Strategic Shift: India must accelerate its shift to Renewable Energy to reduce its oil bill permanently.
• Cultural Shift: We must promote the financialization of savings, encouraging people to invest in mutual funds or bonds instead of physical gold.

With reference to the Indian Economy, consider the following statements regarding the Agriculture Infrastructure and Development Cess (AIDC):

1. It is a tax levied on specific imported and excisable goods to finance agricultural infrastructure.
2. The revenue collected through AIDC forms a part of the divisible pool of taxes shared between the Centre and the States.
3. Increasing the AIDC on non-essential imports like gold can help in stabilizing the Current Account Deficit (CAD).

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2, and 3

Correct Answer: (c) 1 and 3 only