Sunday, November 10, 2013

Our bullion-dollar troubles can end if India goes for gold

It was a subdued Diwali this year. Gold trading on Dhanteras was down by 50%. Traders blamed it on mostly on the lack of gold supply which was 83% lower than last year. But policy makers cheered. Their draconian policy of restricting gold imports was working. India’s trade deficit had declined and the rupee had calmed. But it is a temporary victory. Gold smuggling is on the rise and will eventually triumph, undermining a great victory of the 1991 reforms, which was to kill the havala market. There is breathing room, however, as gold forecasters expect world prices to fall. Western and Chinese investors are losing interest in gold as their economies pick up, which should also dampen Indian investor interest.

India absorbs about a quarter of the world’s gold, and the finance minister is quite right in wanting to limit its import. A recurring theme of world history is the constant loss of Western gold and silver to India. Two thousand years ago Roman senators grumbled that their women used too many Indian spices, silks and fine cottons, and India was draining the Roman empire of bullion. Pliny the Elder called India the ‘sink of the world’s precious metal’ when he heard that a Roman ship touched an Indian port daily.

The Portuguese similarly complained in the 16th century that their hard won gold and silver from South America was being lost to India. The British Parliament echoed this refrain in the 17th century. But India kept sucking Western bullion because Western consumers hankered after Indian luxuries and Indians were not interested in Western goods. As books had to be balanced, they were balanced with bullion. Only Britain’s Industrial Revolution reversed the flow in the 19th century when Indians finally found something they wanted from the West—cheap, durable cottons from the mills of Lancashire — as handlooms worldwide gave way to machine-made cloth.

Soon after Independence, India’s leaders forgot their grand trading heritage and closed our economy in the mistaken belief that trade had impoverished India. Touting the false mantra of ‘self-reliance’, they adopted an import-substituting path, and India lost out in the great trading boom after World War II. India’s share of world trade declined from 2.2% in 1947 to 0.5% in 1990. It was only after 1991 that India regained its historic pre-eminence in the world economy.

Given the one-way flow of gold over the centuries, a staggering amount has accumulated in India. The World Gold Council estimates it to be over 20,000 tonnes, worth $1.1 trillion or half of India’s GDP. For years economists have wanted to use this unproductive asset for productive investment. And happily, the process has begun. Gold loans, bonds, and deposit schemes are all steps in the right direction. In these schemes owners of gold earn interest by depositing it with banks, which in turn releases part of it in the market, thus reducing India’s demand for imported gold.

The bigger prize is to convince temples to do the right thing and deposit their vast gold stocks in banks and earn interest. Jamal Mecklai, the currency expert, had suggested earlier this year that if Tirupati temple were to deposit a third of its holdings at two per cent interest, it could earn Rs 3,000 crore a year. Tirupati did just that in May, beginning with a 2,250-kg deposit with the State Bank of India. This is a triumph! If major temples follow suit, gold will soon flood the domestic market, imports will stop, the global gold price will fall and the rupee will strengthen.

But this government is shy to go for an all out public campaign. It worries about people’s sentiments and of the opposition playing the religious card. Gold is, after all stridhana, ‘woman’s wealth’. Although a daughter now legally inherits her share of family property, families still insist on giving her inheritance at marriage as gold jewellery. But young Indians today are sensible and they will buy the idea that an inflation-proof gold linked certificate exchangeable for gold is the hip thing to receive at marriage rather than a bunch of clunky sets. So go for it, Reserve Bank. The road to India’s economic future may well be paved with gold.

19 comments:

wolverine said...

In these schemes owners of gold earn interest by depositing it with banks, which in turn releases part of it in the market, thus reducing India’s demand for imported gold

I put gold deposit to get interest. I spend more. True. But how does that reduce India's demand for imported gold ?

Minh Anh said...

Hi friend. I recommend to you a blogger template for your site. Here you link: themeforest.net/item/nami-press/6166852.

Mail Abovei said...

put gold deposit to get interest. But how does that reduce India's demand for imported gold ?


Above Interiors

sandhya sen said...

Its depends on the market condition and it goes totally on the troubles with they face.
Equity Market Tips

Ajay yadav said...

I really enjoy simply reading all of your weblogs. Simply wanted to inform you that you have people like me who appreciate your work. Definitely a great post
Online 1 Year MBA

Ajay yadav said...

This is very good content you share on this blog. it's very informative and provide me future related information.
Online 1 Year MBA

Ajay yadav said...

I really like it this kind of information..........Great blog post and really helpful...... and your blog are very interesting and inspiring.
Online 1 Year MBA

NewsEk Aaina said...

It's very valuable and nice information you have shared in your blog

Best places to visit in Delhi

srjwebsolutions said...


We are leading responsive website designing and development company in Noida.
We are offering mobile friendly responsive website designing, website development, e-commerce website, seo service and sem services in Noida.

Responsive Website Designing Company in Noida
Website Designing Company in Noida
SEO Services in Noida
SMO Services in Noida

EG MEDI said...

Egmedi.com is online medical store pharmacy in laxmi nagar Delhi. You can Order prescription/OTC medicines online.
Cash on Delivery available. Free Home Delivery


Online Pharmacy in Delhi
Buy Online medicine in Delhi
Online Pharmacy in laxmi nagar
Buy Online medicine in laxmi nagar
Onine Medical Store in Delhi
Online Medical store in laxmi nagar
Online medicine store in delhi
online medicine store in laxmi nagar
Purchase Medicine Online
Online Pharmacy India
Online Medical Store

indian models91 said...

We are uhe solid first platform for modeling newcomers to achieve there new dreams. The first to train and promote out models at our expense to avoid burden on them. Join the most popular agency if you modelling jobs in Delhi for female freshers, models, students, housewives aiming to start there modeling career. We are top modelling agency in Delhi offering modelling jobs in Delhi for upcoming female freshers or experienced models who want to join lingerie modeling agencies.


modeling agencies in Delhi
modeling agencies
modeling jobs
modeling auditions
model coordinators
modeling jobs in Delhi

indian models91 said...

We are uhe solid first platform for modeling newcomers to achieve there new dreams. The first to train and promote out models at our expense to avoid burden on them. Join the most popular agency if you modelling jobs in Delhi for female freshers, models, students, housewives aiming to start there modeling career. We are top modelling agency in Delhi offering modelling jobs in Delhi for upcoming female freshers or experienced models who want to join lingerie modeling agencies.


modeling agencies in Delhi
modeling agencies
modeling jobs
modeling auditions
model coordinators
modeling jobs in Delhi

ANIL GUPTA said...

We are specialized in Mechanised cleaning of Underground and Overhead Water Tanks of all sizes. Door Step services across Delhi, Noida and Ghaziabad.


Water tank cleaning services in Noida
Water tank cleaning services in Ghaziabad
Water tank cleaning services in Delhi

Drain cleaning services in Noida

Drain cleaning services in Ghaziabad
Drain cleaning services in Delhi
Pipeline Cleaning Service in Noida


Pipeline cleaning services in Ghaziabad
Pipeline cleaning services in Delhi


Tank cleaning services in Noida

Tank cleaning services in Ghaziabad
Tank cleaning services in Delhi

luckys said...

activa 5g mileage

whatsapp plus themes said...

GBWhatsApp Download

luckys said...

WhatsApp Plus app

Exide Battery said...

Battery Mantra Buy Car and Inverter battery online in India. BatteryMantra is Noida based India's No. 1 online battery store offering you genuine batteries of all the well-known battery brands at best prices.

Online Inverter Battery Store
Online Car Battery Store
Buy Inverter battery Dealer Noida
Buy battery online Noida
Online Inverter Battery Store
Buy car battery Noida

Sharon Wood said...

Call HP Printer Support
Brother Printer Support
Canon Printer Help Number

Dale Morris said...

Click here Norton Customer Service Number
Click here McAfee antivirus phone number
Click here Malwarebytes support telephone number
Click here Hp printer support telephone number
Click here Canon printer customer support number