ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Explaining Gold Imports: A Comment

Explaining Gold Imports: A Comment G Omkarnath VAIDYANATHAN (EPW, February 20-26) estimates a sophisticated demand function for gold in India. Since domestic output of the metal is negligible, leaving consumption identical with imports, the demand function takes the form of an import function. Among other things, the exercise is informed by the policy imperative that gold imports suddenly present as an item second only to oil in the import bill. The model as specified is based on the premise that demand for gold arises primarily as investor demand. In other words, the preponderant source of demand is those households which look upon and use gold as a financial asset and hedging instrument. Other motives, such as jewellery, are recongnised but do not figure in the core of analysis. The purpose of this note is to show that the results of estimation, properly interpreted, subvert the model and its basic premise.

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