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Gold bars stashed in plane’s toilet highlight India’s trade woes

These are stories Report on Business is following Wednesday, Nov. 20, 2013.

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All that glitters
It's funny to think of someone leaving 24 gold bars in the toilet of a plane.

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But that $1.2-million (U.S.) in bullion highlights one of India's big economic irritants.

According to reports today, the bars were found in the lavatories of a Jet Airways flight to Calcutta, in eastern India. Two lunch boxes stuffed with 12 bars each were found by the cleaners, Reuters reports.

In fact, the boxes sparked a bomb scare on board.

"There was a bomb scare immediately when the bags were spotted in two separate toilets at round 1 a.m., but later we found they contained 12 pieces of gold bars in each," a Customs official, Rameshwar Meena, told Reuters.

The bars - they're thin, each weighing 1 kilogram - are believed to have originated in Dubai.

"We are educating [our staff] about aircraft maps of how toilets are in an Airbus or a Boeing," a government official told the news agency.

"We are also asking the aircraft crew to tip us off about people who spend slightly more time in toilets."

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There are heightened concerns about gold smuggling amid new government restrictions. The finance ministry has hiked import duties several times, and has brought in other rules, as well.

Indians are huge consumers of gold, particularly during the traditional wedding season.

But officials, trying to tame a raging trade deficit, have brought in several restrictions. Finance Minister Palaniappan Chidambaram has boosted the duty several times.

"When you have social compulsions, there are many ways of overcoming restrictions," Ramesh Babu, the father of a recent bride, told Bloomberg News.

"Irrespective of what the government does, Indians will find a way to get around this because every wedding has to have gold."

India accounts for an outsized portion of global demand for gold, which skews its trade balance.

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In October, for example, its trade deficit swelled to almost $11-billion, according to Reuters, as imports of gold and silver surged ahead of its festival season.

In its most recent annual report, India's finance ministry noted that gold and silver represented almost 13 per cent of the country's total imports in 2011-2012, rising by 44.5 per cent.

Demand for gold in India, and how the government acts, can have a significant impact on the market.

Overall global demand for gold slumped by 21 per cent in the third quarter of this year, from a year earlier, partly because of "Indian government intervention in their domestic market," the World Council said in a report last week.

According to the group, consumer demand for gold in India plunged 32 per cent in the third quarter of this year from a year earlier. So far in 2013, however, demand is up a "robust" 19 per cent, it added.

Fed could slow QE
The Federal Reserve could slow its monthly purchases of financial assets as early as next month if economic readings continue to strengthen, the minutes of the central bank's October policy meeting show.

While the deliberations make clear that overall borrowing costs will remain exceptionally low for a long time to come, officials are all the same getting closer to adjusting one of the stimulus measures, The Globe and Mail's Washington correspondent Kevin Carmichael reports.

"Many members stressed the data-dependent nature of the current asset-purchase program, and some pointed out that, if economic conditions warranted, the committee could decide to slow the pace of purchases at one of the next few meetings," the minutes state.

Since September 2012, the Fed has been creating $85-billion (U.S.) a month to purchase Treasury debt and mortgage-backed securities, a strategy called quantitative easing, or QE. The Fed pledged to keep doing so until it detected substantial improvement in the strength of the labour market.

Prices tame
Six-year-old at breakfast table: "Mommy, what's inflation?"

Mommy: "Well, in the olden days …"

According to the U.S. Labor Department today, consumer prices in the United States dipped 0.1 per cent in October from September. On an annual basis, inflation eased to just 1 per cent, the slowest pace since the fall of 2009.

October's showing was driven largely by a drop in prices at the gas pump, but, over all, highlight how inflation is simply not an issue for central banks.

Disinflation and the threat of deflation, however, certainly is, notably in the euro zone, where annual inflation is now just 0.7 per cent.

Later this week, Statistics Canada releases its monthly report on consumer prices, which expected to show inflation slowed in October to about 0.8 per cent or 0.9 per cent, from 1.1 per cent in September.

Poloz at committee
Markets will be watching closely today for hints from Bank of Canada Governor Stephen Poloz and his senior deputy, who appear before the Senate banking committee after markets close.

Mr. Poloz and Tiff Macklem are fresh off recent statements, and the central bank's monetary policy report, however, so it's not a certainty they'll drop much new.

"We expect Governor Poloz to strike a relatively dovish tone, which should limit [Canadian dollar] strength leading into the session and afterwards," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

Scandal hits Toronto
Toronto's political scandal is hurting the city's "brand" globally.

According to the most recent findings of Cormex Research, which has tracked newspaper exposure of the Rob Ford saga, newspaper coverage globally climbed 31 per cent by mid-November from a year earlier.

"Toronto's tone of coverage was also deteriorating rapidly, as the city's share of negative exposure climbed from 12 per cent in 2012 to 26 per cent in 2013," Cormex said today.

"The Rob Ford story accounted for 60 per cent of total negative media exposure."

The scandal, of course, has become the butt of jokes on late-night TV, and has played in newspapers around the world, including financial publications such as The Financial Times and Wall Street Journal.

"The results point to an even bigger impact of Rob Ford on digital media and television, where the story's elements of hourly developments, a constant flow of new video and a polarizing character around which to build a narrative are attracting more and more global media to the scandal," said Cormex chief Andrew Laing.

"Toronto's brand globally is hip and smart, generated by its cultural industries such as TIFF and performers such as Drake, and its education and research organizations like the University of Toronto and the Hospital for Sick Kids," he added.

"Now there's a new narrative – bad political governance – and it's quickly overtaking the good news story that is Toronto globally."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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