I may be right, newly appointed free market central banker Raghu Rajan either has failed to oppose his colleagues from expanding interventionist policies or has succumbed to powers of the dark side as the Indian government moved not only to ban all gold coin imports but impose rigid capital controls as well.
First capital controls, from the Times of India:
Amid continuing pressure on the rupee, the RBI on Wednesday announced stern measures, including curbs on Indian firms investing abroad and a reduction of outward remittances, to restrict the outflow of foreign currency.The central bank reduced the limit for overseas direct investment (ODI) by domestic companies, other than oil PSUs, under the automatic route from 400 per cent of net worth to 100 per cent. Oil India and ONGC Videsh are exempt from this limitation…The RBI reduced the limit for remittances made by resident individuals under the liberalized remittances scheme (LRS) from $2 lakh to USD 75,000 a year. Resident individuals are, however, allowed to set up joint ventures or wholly owned subsidiaries outside under the ODI route within the revised LRS limit.
Next, expanding gold curbs via total import ban…
Seeking to reduce the import of gold, the Reserve Bank Wednesday prohibited inward shipment of gold coins, medallions and dores without license. "From now onwards, import of gold in the form of coins and medallions is prohibited and henceforth all import of gold in any form or purity shall be subject to a licence issued by DGFT prescribing 20-80 scheme," economic affairs secretary Arvind Mayaram told reporters here.The latest measures are part of the series of steps taken to curb gold import, the single biggest contributor to the widening current account deficit (CAD). After a dip in June, gold imports again surged in July with 47 tonnes of inward shipments compared to 31 tonnes in the previous month. Import of gold in April-July rose 87 per cent to 383 tonnes.
Not satisfied with scapegoating gold, the Indian government has vastly expanded political controls over the financial system. Such actions will not only hit India’s economy hard as economic activities will be suppressed, but likewise will sink the financial markets and worsen India’s financial conditions.
As the great Austrian economist Ludwig von Mises warned;
State interference in economic life, which calls itself "economic policy," has done nothing but destroy economic life. Prohibitions and regulations have by their general obstructive tendency fostered the growth of the spirit of wastefulness. Already during the war period this policy had gained so much ground that practically all economic action of the entrepreneur was branded as violation of the law. That production is still being carried on, even semi-rationally, is to be ascribed only to the fact that destructionist laws and measures have not yet been able to operate completely and effectively. Were they more effective, hunger and mass extinction would be the lot of all civilized nations today.
Ironically despite the earlier gold curbs, India’s gold imports soared in July with smuggling as one major route. But these has forced India’s neighbors to impose their own controls
These absurd actions by the Indian government validates Jim Rogers’ short position on India. Expect more weakness in India’s rupee (chart from XE.com)
The Indian government’s dilemma has truly been due to their insatiable profligacy. Yet, this is another example of the ratchet effect, or the mission creep of interventionism.
Also since the Indian government has been fighting the Indian tradition, it is not far fetched to expect social upheaval as repercussion from such gold sale prohibition.
Also I expect emergent fissures in the relationship with her foreign trade partners and neighbors as the interventionism by the Indian government spreads.