FB   
 
Powered bysps
        Society for Policy Studies
 
 

 
Gold shines: on reducing India's demand for gold
Updated:May 16, 2017
 
Print
Share
  
increase Font size decrease Font size
 
Prime Minister Narendra Modi’s long-drawn-out effort to tackle the desire for gold does not seem to be bearing fruit. India’s gold imports witnessed a huge jump in April, increasing threefold to $3.85 billion from $1.23 billion in April 2016. In March, the jump driven by jewellery demand was even higher as gold imports stood at $4.17 billion, compared to $974 million a year earlier. This suggests that Indian demand for gold is robust and that policymakers will have to continue worrying about its impact on the country’s trade deficit for a long time to come. The trade deficit in April was $13.2 billion, the highest since November 2014, compared to $4.8 billion in the year-earlier period. The 20% increase in exports to $25 billion was overcome by a 49% increase in imports, which stood at $38 billion. The jump in gold demand is particularly significant given the many steps taken to reduce it in recent years. For instance, the demonetisation of high-value currency notes last November coincided with India’s gold demand dropping to a seven-year low of 675 tonnes during 2016, according to the World Gold Council. Earlier, as part of his efforts to push Indians to decrease their gold purchases, Mr. Modi had introduced the gold monetisation scheme that aimed to reduce gold imports by using deposits to increase domestic supply. But, as of early 2017, the amount of gold that had been deposited under the scheme was less than 1% of overall gold demand in 2016.
 
It is no secret that Indians tend to favour gold over other income-generating financial assets. This has, for a long time, led to concerns about savings being wasted on a dormant metal instead of being invested in productive business activities. While such concerns may be valid, policymakers would do well by first tackling the issues that have explained the average Indian’s preference for gold. The metal’s predominant utility as a hedge against inflation, which protects the average investor lacking sophisticated financial acumen from a depreciating rupee, cannot be ignored. Ironically, the Centre’s sudden demonetisation decision has possibly undermined confidence in the rupee as a store of value, adding to the yellow metal’s attractiveness. Capital conservation is an important reason for investment in gold by Indian households. Gold’s lure cannot be explained only as a reserve for illicit wealth or tax evasion. Access to better and more formal financial market instruments remains a pipe dream for the majority in a country where talk of financial inclusion remains at the level of opening a basic bank account. Any significant strides on this front will require structural reform of the financial sector that encourages more competition to spur financial innovation and access. Until such time, gold is likely to remain a favourite asset, with gold imports adversely impacting India’s external trade balance.
 
The Hindu, May 17, 2017
 
 
 
 
Print
Share
  
increase Font size decrease Font size
 

Disclaimer: South Asia Monitor does not accept responsibility for the views or ideology expressed in any article, signed or unsigned, which appears on its site. What it does accept is responsibility for giving it a chance to appear and enter the public discourse.
Comments (Total Comments 0) Post Comments Post Comment
Review
 
 
 
 
spotlight image A career diplomat, Chitranganee Wagiswara, High Commissioner of Sri Lanka, is the first woman to be the island nation’s envoy to India. As Foreign Secretary, she was Sri Lanka’s top diplomat for 18 months before being posted to New Delhi.
 
read-more
India has accused the United Nations Security Council and the international community of tending to ignore the terrorists ravaging Afghanistan and their backers while these forces “have stood up against one of the biggest collective military efforts in the world.”
 
read-more
Close Canada-India collaboration in health and wellness is a journey that commenced in 2015 in Toronto, when the first major health summit was held, and ended in March 2017 in New Delhi.
 
read-more
With weird concoction like "Beer Yoga" getting popular as the next big international fitness craze, the ancient art of inner blossoming is seemingly going topsy-turvy. And as yoga hogs the limelight on its third International Day, the loud call for saving the spirit of the ancient and modern practice can't be swept under
 
read-more
AS backpedaling goes, it is unconvincing. Indian army chief Gen Bipin Rawat waded deep into controversy last month when he vigorously defended the army’s violent suppression of legitimate dissent in India-held Kashmir.
 
read-more
Sher Bahadur Deuba has been elected Prime Minister of Nepal at an especially fragile time in the life of the 11-year-old Himalayan republic.
 
read-more
The opposition and media in Pakistan have been crucifying Prime Minister Nawaz Sharif for having sat through the US-Arab-Islamic Summit held in Saudi Arabia in the first week of June, without highlighting the grievances of the Pakistani people.
 
read-more
A United States fighter downed a Syrian military aircraft for the first time when it bombed a Syrian rebel faction backed by Washington.
 
read-more
Column-image

Title: Reporting Pakistan; Author: Meena Menon; Publisher: Viking/Penguin Random House; Pages: 340; Price: Rs 599

 
Column-image

  A former Indian civil servant, who is currently a professor of Public Policy and Political Science at Duke University, US spent long periods in distant villages and city slums of India. The result? A scholarly book that presen...

 
Column-image

  Title: The Exile; Author:  Cathy Scott-Clark & Adrian Levy; Publisher: Bloomsbury Publishing; Pages: 640; Price: Rs 699

 
Column-image

Jim Corbett was a British-Indian hunter and tracker-turned-conservationist, author and naturalist; who started off as an officer in the British army and attained the rank of a colonel. Frequently called in to kill man-eating tigers or leopards,...

 
Column-image

Title: Bollywood Boom; Author: Roopa Swaminathan; Publisher: Penguin; Price: Rs 399; Pages: 221

 
Subscribe to our newsletter
Archive