The indian people’s appetite for gold is well know, they are after all the biggest buyer of gold on the planet.
However most Indians save in the form of bullion and jewelry, something that the Indian government is trying to change. Back in March we reported that the Indian government doubled the import tax on gold bullion. And also in March we reported on the Indian media ‘bashing’ gold by claiming that buying gold hurts the Indian Economy.
But despite all these attempts above to restrict physical gold buying in India it seems it is not enough for the Indian government. Now it’s trying to push people into buying ‘non-physical gold’.
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However most Indians save in the form of bullion and jewelry, something that the Indian government is trying to change. Back in March we reported that the Indian government doubled the import tax on gold bullion. And also in March we reported on the Indian media ‘bashing’ gold by claiming that buying gold hurts the Indian Economy.
But despite all these attempts above to restrict physical gold buying in India it seems it is not enough for the Indian government. Now it’s trying to push people into buying ‘non-physical gold’.
New Delhi: Sounds like we are heading back to the 1962 days when the Indian government enacted the Gold Control Act, which prohibited the citizens from holding gold bars and coins. Under the Act, existing holdings had to be compulsorily converted into jewellery and also be declared. Besides, only licensed dealers were allowed to deal in gold bars and coins. The trigger to enact this law was the 1962 Indo-China war, which eroded much of the country’s foreign exchange reserves mainly on account of people making frantic purchases of gold in times of crisis.Great spin in this article. Yes, the Indian government is actually being ‘helpful’ by getting people to invest in gold ‘without investing in the physical commodity’. The article continues:
It was only during the much vaunted liberalisation process, kicked off in 1992, that the government rolled back this Act and allowed the import of gold for a duty payment of Rs.250 per 10 gram. The decision was taken largely on account of the unorganised market for gold that had emerged during the period, and gave way to smuggling and black marketing in the precious metal.
Today, years later, the government seems to be doing just the same, though in an alleviated fashion by mulling over schemes like gold deposits, accumulation plans, gold-linked accounts and pension products, which dissuades the investor from putting in their money in buying physical gold.
In its Mid-Year Economic Analysis tabled in Parliament today (December 17), the government said the gold-backed products, which it is considering, will help the investor enjoy the benefits of investment in the metal without investing in the physical commodity.
The government contends that the schemes are being considered mainly due to rising imports of the yellow metal which is to blame for the high current account deficit.So it is unambiguously it is the policy of the Indian government to reduce the physical gold demand in India.
The current account deficit (CAD), which occurs when a country’s total imports are greater than total exports, has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising oil and gold imports.
“Now, gold-backed financial instruments in the form of modified gold deposits and gold accumulation plans, besides gold-linked accounts and pension products linked with the precious metal, are some measures being considered to reduce the attraction of a direct investment in bullion and jewellery in the domestic market and check a substantial rise in imports,” the Mid-Year Economic Analysis said.
However, gold-linked investments would have to be monitored to see whether the overall demand for the metal actually falls, it said.
Speaking on the proposed moves to curb gold imports, Finance Ministry’s Chief Economic Advisor Raghuram Rajan said: “We are worried about gold imports. It is an unproductive instrument. The way to curb holding of gold is to create more attractive financial instruments.That’s right, one of the safest ways to store value over the last couple of millennia is now reduced to an ‘unproductive instrument’ by the Finance Ministry in India.
“Some gold-linked instruments have been talked about by the RBI but potentially there could be other financial instruments to attract investment.”We would suggest that the most crucial time that you should be holding physical gold and not paper-gold is precisely when your government is trying to ‘encourage’ you not to. One thing to watch in 2013 will be just how successful the Indian government can be in this attempt.
“We are worried about CAD. We want to take steps to monitor it,” Rajan said on the government’s worry on high CAD,” Mr. Rajan said
It is not that the government’s need to curb gold imports is newfound. Earlier, the Reserve Bank levied a slew of curbs on gold purchase and financing as imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2 per cent during the period.
business@gold4change.com
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