Paradigm shift in gold policy - Dr.S.S.Tarapore
.........The RBI’s KUB Rao report had made a vital recommendation on the mobilisation of idle gold hoards within the country. Various estimates put the hoards in India at 25,000- 30,000 tonnes. If a small part of these hoards are mobilised, there would be a sharp reduction in gold imports. Unlike earlier schemes which were not attractive, the authorities could introduce a very attractive gold- for- gold scheme with attractive rates of interest. If gold is lent to users at say 10 per cent, the depositor of gold could be paid 7 per cent. Such a scheme could result in disgorging of large gold hoards and as the idle gold is monetised the savings investment gap could be narrowed and thereby the CAD would be lower.............
3 comments:
A couple of days back, the TOI carried a news item that gold plating is done extensively in the houses of Mukesh Ambani and Shah Rukh Khans. These are just two cases reported. In India, so many such individuals are living. It is reported in the article that about 25000- 30000 tons of gold are hoarded in India. If the above examples are any indication, the gold hoarding in India is a classic case of following Pareto's Principle with 80% of the gold wealth in the hands of 20% of the people in India. In reality, it may be 90-95% of gold will be just in the hands of 5-10% of the people in the country. So, target them and make them surrender their gold, country will prosper.
Suggestion to increase investment climate and provide real and reasonable rate of return on savings will help to a great extent. In the long run, if we allow Islamic Banking with suitable checks and balances, it would increase the flow of foreign investments particularly from the UAE countries.
The domestic household stock of gold in India estimated at over 25,000 tons, the country’s annual purchase of over 30 per cent of global gold purchase leading to an estimated cumulative demand of 1200 tons by 2020 and low share of gold in country’s forex reserves as compared to other countries and not always economic and prudent handling of this precious metal, all these and more point to the urgency in having a national policy for gold management. The economic and technical policy aspects highlighted in the article should get the attention they deserve from GOI. The policy should look at a strategy that will encourage transparency in transactions, elimination of wastages, standardization of valuation norms and facilities for gradually converting even the existing stock of gold with individuals and institutions to conform to internationally acceptable standards.
RBI and Centre, in the early 1990’s actively considered setting up a Gold Bank with a mandate to do real gold-related banking, also taking care of the forex dimensions of the idea. However, the project was a non-starter presumably for profit-related reasons and possibly, external pressure. Perhaps the time is opportune to reopen the debate on professional management of India’s gold resources. Authorities should think in terms of dedicated professional institutions at regional/state level which will handle gold from a banking angle equipped with linkages for import and export of gold and gold products with borrowing and lending capabilities. The initiative has potential to take India out of the balance of payment and CAD problems the country is facing now.
Has any of the gold mobilisation schemes introduced in the past worked in our country ? Gold is God in our country. Look at any picture of god or goddess and you will realise this quickly. All temples in our country sit on mounds of gold. If at all any one has to part with gold it is these trusts which should be made to 'shed' some of their gold, if need be, through appropriate government fiat. Individuals come later. If we can persuade only one such temple trust to 'invest' its gold holding through a scheme run by either the govt. or SBI, our CAD can be bridged to a great extent. If this works then individuals can be encouraged to follow suit. Till then we can patiently wait to see the value of one dollar fetching one hundred rupees !
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