India's gold imports hit a record high of $10.06 billion in August, more than six times the gold India's central bank bought last year, data released by the Indian government show.

The prime reason for this is India lowered its import duty on gold from 15 percent to 6 percent at the end of July, as part of its efforts to curb gold smuggling. It is estimated that about one-third of the world's gold output goes to India every year, the lion's share going to the private sector. The cut in import duty on gold coincided with the then approaching rate cut by the US Federal Reserve, prompting a gold-buying spree in India in August.

India's massive jump in gold imports may also be aimed at bolstering the Narendra Modi government, which entered its third term in June. The Modi government is on a mission to vigorously boost India's infrastructure capacity, with a planned investment of 44.4 trillion rupees ($531.25 billion), which is equivalent to the total investment in infrastructure over the past 10 years. The enormous infrastructure construction plan raises financing needs, but India's inward foreign investment this year has plummeted to $2.6 billion, far from the average annual FDI inflow of $40 billion between 2000 and 2022.

The decline of foreign investment in India is closely related to India's business environment, which has been called a "graveyard of foreign investment" in recent years. On the other hand, a series of measures adopted by the Modi government in 2016 to crack down on illegal fund flows has weakened the trust in the rupee, and the recent sharp fluctuations in the rupee's exchange rate have also added outside doubts to the Indian economy. In this context, the massive rise in gold imports has the intention of stabilizing the rupee's exchange rate and underpinning Modi's infrastructure construction initiative.

To promote the internationalization of the rupee, India's central bank launched the rupee settlement mechanism for international trade less than five months after the outbreak of the Russia-Ukraine conflict, taking advantage of Western sanctions against the Russian ruble to buy large amounts of Russian oil in rupees. India has also actively promoted a conditional BRICS settlement mechanism.

All these initiatives, however, have not yielded the expected results, instead stoking suspicion and countermeasures from the United States. On Sept 6, the US announced sanctions against two Indian shipping companies over imports of Russian liquefied natural gas. In a sense, India's gold-buying spree could be aimed at mollifying some Western countries such as the US.

- BEIJING NEWS