Buying and investing in gold has become a customary habit with Indian people. Major chunk of the savings of citizens here is used in buying gold. According to figures made available by the government sources, India imported gold worth USD 56.3 billion in 2011-12; USD 53.7 billion in 2012-13 and USD 28.9 billion in 2013-14. The Compound Annual Growth Rate (CAGR) of the gold-import between 2008 and 2012 had reached above 40% in INR terms, which is alarming.
According to an estimate, total gold hoarded by Indian people is estimated between 18,000 to 40,000 tons. This has value of about USD 827 to USD 1,840 billion (or INR 54 to 120 lac crore). This amount does not include the gold held by rich trusts of Indian temples. These figures reveal a perception of the huge amount of foreign exchange (wasted) in the form of gold which is lying idle in bank-lockers here. This problem is likely to swell in future if drastic measures are not taken. The scene is rather dismal especially when the financial condition of the country is weak.
This is the reason why India’s previous government had imposed 10% import duty on gold and the present government has preferred (against all expectations of the industry circles) to continue with the same. The other option with the Indian government to curb the Current Account Deficit (CAD) was to recycle the above-mentioned huge amount of gold lying unused with Indian people and rich temples.
Accordingly, the government has also introduced a scheme to attract gold deposits from temples at a lucrative interest rate. Initially, the suspicious temple trusts were reluctant to declare or deposit their gold with the banks but now slowly, the scheme is becoming acceptable by the trusts with the Tirumala Tirupati Devasthanams (TTD) of the famous Tirupati temple in South India depositing a huge amount of 1,800 kgs. of gold with the State Bank of India (SBI) recently, taking the total deposits made by it so far with various banks to more than 5,000 kgs. The gold has been deposited with the SBI under its Gold Deposit Scheme for a period of five years which would fetch the trust an interest of 1% per annum. The gold will now be melted at Government Mint situated in Mumbai.
Similarly, Shree Siddhivinayak Ganpati temple in Mumbai which is often visited by Bollywood celebrities, had already deposited 10 kgs. of its gold with a bank. The trust is still said to have 140 kgs. gold in its vault. The government is also encouraging individuals to deposit their gold jewellery with banks on similar line.
The hunger of gold among Indians is insatiable. If one goes by the facts and figures above, the gold crazy Indians are, in a way harming the fragile Indian economy. So is it a bad habit among Indians to spend on gold? Neither the government nor experts here have ever denounced the so called habit of hoarding gold. The government seems to avoid the ideas which may make them un-popular. It is necessary for the Indian government to control the CAD, levels of foreign debt to reserve ratio, depreciation of Indian currency and other foreign exchange related difficulties. These factors are sucking big amounts of savings every year which can be otherwise used for scarce capital for infrastructure, generation of employment etc.
To put it other way round, gold is mother of all non-essential and unproductive imported commodities in India. It is the second largest single non-essential commodity (after petroleum, which is essential) imported every year. In short, when the purchase of gold is not a productive investment, it becomes duty of every Indian citizen to desist from spending on any form of gold, at least till the country safely comes out of the present hazardous CAD position.
Posted by Suresh Chotai
