<p>Among myriad problems the government is facing in putting its tottering revenues back in place, the rising consumption of gold has emerged, of late, as the most palpable one.<br /><br /></p>.<p> Indians’ love affair with gold is leading to rising import of the yellow metal and that in turn is contributing to the decline in the balance of payments situation. In the light of this, the government’s urgency to curb the rising inbound shipment of gold is justified. But, will chocking supply alone help solve the problem?<br /><br />Analysts opine that supply curb will lead to rise in prices of gold and also rise in its smuggling. They say the government needs to understand why Indians’ have so much appetite for the yellow metal. Why it is not satiated even when the price of the precious commodity has hit the roof.<br /><br />Gold is long seen as a commodity to hedge against price rise. So, whenever there is rising inflation, people take recourse to gold. It is treated as safe investment. So, in a country like India, where inflation is so intrinsic to the system, it is very difficult to keep people away from procuring gold. In India people also tend to put their savings in the form of gold. Gold is considered the best investment during times of recession. It gives returns like no other investment does. And thirdly, investment in physical gold does not require any document as proof. This suits India’s rural populace which is not well versed in investments backed by documentary proofs. Understandably, rural India accounts for close to 60 per cent of India’s gold consumption. Hence, the rising demand and corresponding imports.<br /><br />Not sufficient<br /><br />But, according to latest government data, India’s balance of payments has returned to deficit in the July-September period as the amount of foreign investment that poured in were not sufficient to bridge a record current-account gap.<br /><br />Traditionally, India has been world’s largest single consumer and also the largest importer of gold. The appetite for this precious metal among the Indians rises on the onset of wedding and festive seasons. India imported 223 tonnes of gold in this period, 9 per cent more than the previous three months between April and June this year.<br /><br />The figure is alarming but it is not the first time that the gold imports have risen. India imported a record 967 tonnes of gold in 2011. But this time, the import has reached this proportion despite the government doubling import duty on gold in the budget for 2012-13. This huge import has come as a shock to the Reserve Bank of India too, which asked the banks and agencies controlling gold import into India to put a restriction on the volume of imports.<br /><br />The RBI has suggested the banks to introduce new gold-backed financial products. Besides, there are about 20,000 tonnes of gold lying idle in Indian households. The central bank is in favour of channelising this sloth physical asset into the system and asked banks to consider expanding their share of gold jewellery loan portfolios to monetise this huge stock.<br /><br />Experts have also suggested introduction of gold deposit schemes whereby gold is taken as a deposit and recycled for meeting domestic demand and given back to the depositor at the time of maturity.<br /><br />Then, there are suggestions for Gold Pension Product, whereby a customer surrenders gold to a bank on the agreement that he or she will get a monthly pension till death. A proportion of the amount is also given back to the survivor from the depositor’s family. “The crux is that the return on investments to discourage the purchase of gold should be as handsome as on gold,” Harish Galipalli of JRG securities said.<br /><br />India currently has gold traded funds like Gold ETFs (exchange-traded fund). These are mutual fund schemes that invest in standard gold bullion. Then, there is e-gold, which is the electronic mode of investing in gold, which allows conversion to physical gold at any time. These schemes are doing well, but are not all too friendly for a common buyer. To operate these, one either has to open Demat account from National Spot Exchange or go through a lot of paper work which has become a hindrance.</p>
<p>Among myriad problems the government is facing in putting its tottering revenues back in place, the rising consumption of gold has emerged, of late, as the most palpable one.<br /><br /></p>.<p> Indians’ love affair with gold is leading to rising import of the yellow metal and that in turn is contributing to the decline in the balance of payments situation. In the light of this, the government’s urgency to curb the rising inbound shipment of gold is justified. But, will chocking supply alone help solve the problem?<br /><br />Analysts opine that supply curb will lead to rise in prices of gold and also rise in its smuggling. They say the government needs to understand why Indians’ have so much appetite for the yellow metal. Why it is not satiated even when the price of the precious commodity has hit the roof.<br /><br />Gold is long seen as a commodity to hedge against price rise. So, whenever there is rising inflation, people take recourse to gold. It is treated as safe investment. So, in a country like India, where inflation is so intrinsic to the system, it is very difficult to keep people away from procuring gold. In India people also tend to put their savings in the form of gold. Gold is considered the best investment during times of recession. It gives returns like no other investment does. And thirdly, investment in physical gold does not require any document as proof. This suits India’s rural populace which is not well versed in investments backed by documentary proofs. Understandably, rural India accounts for close to 60 per cent of India’s gold consumption. Hence, the rising demand and corresponding imports.<br /><br />Not sufficient<br /><br />But, according to latest government data, India’s balance of payments has returned to deficit in the July-September period as the amount of foreign investment that poured in were not sufficient to bridge a record current-account gap.<br /><br />Traditionally, India has been world’s largest single consumer and also the largest importer of gold. The appetite for this precious metal among the Indians rises on the onset of wedding and festive seasons. India imported 223 tonnes of gold in this period, 9 per cent more than the previous three months between April and June this year.<br /><br />The figure is alarming but it is not the first time that the gold imports have risen. India imported a record 967 tonnes of gold in 2011. But this time, the import has reached this proportion despite the government doubling import duty on gold in the budget for 2012-13. This huge import has come as a shock to the Reserve Bank of India too, which asked the banks and agencies controlling gold import into India to put a restriction on the volume of imports.<br /><br />The RBI has suggested the banks to introduce new gold-backed financial products. Besides, there are about 20,000 tonnes of gold lying idle in Indian households. The central bank is in favour of channelising this sloth physical asset into the system and asked banks to consider expanding their share of gold jewellery loan portfolios to monetise this huge stock.<br /><br />Experts have also suggested introduction of gold deposit schemes whereby gold is taken as a deposit and recycled for meeting domestic demand and given back to the depositor at the time of maturity.<br /><br />Then, there are suggestions for Gold Pension Product, whereby a customer surrenders gold to a bank on the agreement that he or she will get a monthly pension till death. A proportion of the amount is also given back to the survivor from the depositor’s family. “The crux is that the return on investments to discourage the purchase of gold should be as handsome as on gold,” Harish Galipalli of JRG securities said.<br /><br />India currently has gold traded funds like Gold ETFs (exchange-traded fund). These are mutual fund schemes that invest in standard gold bullion. Then, there is e-gold, which is the electronic mode of investing in gold, which allows conversion to physical gold at any time. These schemes are doing well, but are not all too friendly for a common buyer. To operate these, one either has to open Demat account from National Spot Exchange or go through a lot of paper work which has become a hindrance.</p>
