Gs Paper-3
Syllabus: Effects of liberalisation on the economy (post-1991 changes), changes in industrial policy and their effects on industrial growth.
Context:
G7 have decided to ban Russian gold imports in order to punish it for the invasion of Ukraine.
How a G-7 Russian gold ban would work:
- Will put economic pressure: Already Russia has defaulted on its foreign debtfor the first time since the 1917 Bolshevik Revolution, and Gold is Russia’s second-largest export industry after energy.
- A ban on imports of Russian gold will target its ability to interact with the global financial system.
Why ban Gold?
- Gold used to support currency: The US says Russia has used gold to support its currency as a way to circumvent the impact of sanctions.
- One way to do that is by swapping gold for a more liquid foreign exchange that is not subject to current sanctions.
Will the ban work?
- No, it may not work: Some experts say since only a few countries are implementing the gold ban, the move is largely symbolic.
- Yes, it may:
- Restrict export revenue: While Russia will still able to sell gold to other countries outside the Group of Seven jurisdictions, it will “impact the ability of Russia to earn export revenue”
- Create threat of secondary sanctions: Countries outside G7, who trade with Russia may face a ban.
How much gold does Russia have?
- Russia began increasing its gold purchases in 2014 after the US issued sanctions on Russia for invasion of Crimea. Now the country holds $100 billion to $140 billion in gold reserves.
- Gold gives $19bn in revenue every year: Gold is Russia’s second most lucrative export after energy and nearly 90% of the revenue comes from G-7
Impact on India:
- Since India is not part of the G7, the move will not directly impact it. However, India may face problems in issuing payments for gold purchases.
- May increase the price of Gold: India is the largest importer and consumer of Gold and limited supply may increase its price.
Insta Links
Practice Questions
Q. The fallout from the Ukraine crisis will, directly and indirectly, impact the Indian economy. Analyze. What steps are needed to protect the Indian economic interests? (15M)
Source: Indian Express
