Can Policy actions by themselves reduce demand for gold in India? The craving for gold, both as jewellery as well as an investment option, has reached such dimensions that the govt and RBI are working in tandem to moderate the domestic demand.
The demand for gold has been such that the macro economy has been adversely impacted. The widening of the trade deficit and with it the current account deficit(CAD) is one obvious fall out.
Recently the CAD seems spinning out of control to touch 5.2% of Gross Domestic Product(GDP) during the second quarter (July-September of 2012-13). Gold and Petroleum imports have been behind the high trade imbalance. Both have remained inelastic.
There is really no magic bullet.In the past neither higher duty on Gold imports nor any other form of restraint has been effective.
A working Group constituted by the RBI to study the issues connected with Gold and Gold Loans by Non Banking Finance Companies(NBFC) has just submitted its report.
Moderation of Gold imports is necessary for the sake of external sector's stability.
One promising remedy would be Financialisation of Gold both the imported component as well as the domestic stock. Banks and institutions need to introduce attractive savings packages based on gold. Simultaneously alternative avenues for investment should be made to provide a real rate of return that is higher than what obtains now. Only then can domestic consumers be weaned away, at least partially from their craving for gold.
An opposite view is that since the easy availabilty of gold loans is a principle factor behind the increased demand for gold, policy measures must aim at reining in such loans.
Products such as-
Banks and others who will operate these schemes should be equipped to handle gold as an investment. While popularising such schemes it must be ensured that the intermediation charges are kept low and publicised as such.
Ultimately, it is a question also of breaking the strong emotional and cultural links that owing gold has in this country.
Ther is really no permanant solution, except by winnig the battle over inflation, and equally importantly, convincing ordinary people that their investment in conventional bank deposits as well as in those backed by gold yield a real return.
Courtesy: THE HINDU
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| Columnist, C R L Narasimhan |
Can Policy actions by themselves reduce demand for gold in India? The craving for gold, both as jewellery as well as an investment option, has reached such dimensions that the govt and RBI are working in tandem to moderate the domestic demand.
The demand for gold has been such that the macro economy has been adversely impacted. The widening of the trade deficit and with it the current account deficit(CAD) is one obvious fall out.
Recently the CAD seems spinning out of control to touch 5.2% of Gross Domestic Product(GDP) during the second quarter (July-September of 2012-13). Gold and Petroleum imports have been behind the high trade imbalance. Both have remained inelastic.
There is really no magic bullet.In the past neither higher duty on Gold imports nor any other form of restraint has been effective.
A working Group constituted by the RBI to study the issues connected with Gold and Gold Loans by Non Banking Finance Companies(NBFC) has just submitted its report.
Moderation of Gold imports is necessary for the sake of external sector's stability.
One promising remedy would be Financialisation of Gold both the imported component as well as the domestic stock. Banks and institutions need to introduce attractive savings packages based on gold. Simultaneously alternative avenues for investment should be made to provide a real rate of return that is higher than what obtains now. Only then can domestic consumers be weaned away, at least partially from their craving for gold.
An opposite view is that since the easy availabilty of gold loans is a principle factor behind the increased demand for gold, policy measures must aim at reining in such loans.
Products such as-
- Gold Accumulation Plan.
- Gold Linked Account.
- Modified Gold Deposit.
- Gold Deposit.
Banks and others who will operate these schemes should be equipped to handle gold as an investment. While popularising such schemes it must be ensured that the intermediation charges are kept low and publicised as such.
Ultimately, it is a question also of breaking the strong emotional and cultural links that owing gold has in this country.
Ther is really no permanant solution, except by winnig the battle over inflation, and equally importantly, convincing ordinary people that their investment in conventional bank deposits as well as in those backed by gold yield a real return.
Courtesy: THE HINDU
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