When a government habitually hides from accountability, it has no reason to complain if its denials are taken for prevarication. The BJP-led Union Government is up against a trust deficit as it denies a report that it sold some of the nation’s gold last month to replenish its forex reserves, which have been seriously eroded since the start of the war in West Asia.
Earlier this week, the international news agency Bloomberg reported, inferring from published data, that the Reserve Bank of India (RBI) “may have” sold gold worth $12 billion over two weeks prior to May 22 and acquired foreign currency assets worth $7.5 billion in a bid to shore up the plummeting rupee.
India’s forex reserves have fallen from a record $728 billion on February 27, when the US and Israel attacked Iran, to a one-year low of $681 billion on May 22. The government has been unable to staunch the bleeding despite more than doubling the duties on gold imports.
The RBI issued an emphatic denial of the report and released figures stating that India’s gold reserves as of April remain unchanged at 880.52 tonnes. The Press Information Bureau, the government of India’s official fact-check agency, but really its Ministry of Truth, chimed in by putting a ‘fake news’ stamp on the report.
It’s understandable why a story like that would set alarm bells ringing in the government. Any talk of a sale of bullion reserves at a juncture like the present brings back visions of the 1991 balance of payments crisis when the Union government — beleaguered then as now by a war in the Persian Gulf, a serious dwindling of remittances, and an oil price spiral — secretly shipped the nation’s “family silver” to Europe to secure loans to avoid a sovereign default. If something similar were to happen now, it would count as a low point for the nation, as it did then.
It's no one’s case that this is a 1991 moment for India. Back then, our forex reserves had collapsed to $1.2 billion, enough to pay for two weeks of imports; today, in spite of the run on our dollar holdings due to ballooning oil prices and rising imports, India is covered for 12 months of imports and in no danger of any default. However, the Narendra Modi government is so shy of accountability and so comfortable in opaque operations that its protestations of candour carry little conviction among the people.
While the official communique was obviously designed to reassure the public, a timeline mismatch — showing no change in gold holdings in April but remaining silent on the two-week period to May 22 — left it open to dissonance. There was a drop in the dollar value of bullion reserves by roughly $6 billion, not entirely explained by the correction in global gold prices, while there was a surge in foreign currency assets during the exact same two-week period.
At a time when the Union government is caught in a perfect storm of a soaring import bill, flight of capital from the Indian markets, and falling remittances, it needs to have the public’s confidence on its side. But to win that trust, it needs to welcome accountability, not be comfortable in opacity. A furtive operating style does nothing to reassure the public at home, nor will it gain the confidence of NRI investors whose dollars it now needs.