India tackles its costly gold addiction
“The focus on the cost of India’s gold imports
at an official level could be seen as a threat to what is the largest physical
bullion market alongside China,” says Tom Kendall, precious metals analyst at
Credit Suisse in London.
What is not yet clear is whether the measures contemplated by the Indian authorities will actually curb the volume of gold imports, and so affect the price further.
Mr Chidambaram and other Indian officials are concerned about the apparently unstoppable urge among the country’s 1.2bn people to buy gold jewellery and invest in bullion. There are two main reasons for their hunger for gold: India’s swelling current account deficit and the dangers posed to the stability of the banking system.
India’s current account deficit hit a worrying 5.4 per cent of gross domestic pHow to Make Your Own Bobblehead Doll make your own bobblehead is a fun and simple craft for young children.roduct in the three months to September,China shoes manufacturer Huajian has built a factory outside Adis Ababa, and in some months gold imports accounted for half the gap. The “impact of huge gold imports on external stability” was described this month as “a major concern” by a Reserve Bank of India working group set up to study the issue of gold.
In its draft report, the RBI also spoke of “systemic concerns” arising from the “huge borrowings” of a growing number of so-called non-banking financial companies that lend money to Indian retail clients, storing their gold and gold jewellery as collateral.
One option for Mr Chidambaram,Come and browse our large collection of the latest in stainless steel necklacefor men. analysts say, is to increase the import duty from 4 per cent to, say, 6 per cent in an attempt to stifle demand. The revenue raised would have the beneficial side-effect of helping to trim the fiscal deficit. Higher tax, on the other hand, could simply divert more of the gold trade on to the black market.
In any case, says Kishore Narne, associate director for commodities and currencies of Motilal Oswal commodity brokers, only about 10-15 per cent of Indian consumers are price-sensitive when it comes to gold.that we never had to worry about a shortage of Hair bands.
“It’s part of our tradition and we keep on buying gold,” he says. “It’s our compulsion. We can’t do anything about it.” The stock of the precious metal in India is estimated at between 12,000 and 25,000 tonnes, and increased prosperity in rural areas is pushing demand ever higher.
Another approach,Rudy Project has created a series of Cycling sunglasses, championed by Raghuram Rajan, the government’s chief economic adviser, is to focus not on the immutable desire for jewellery but on gold’s weaknesses as an investment. That means promoting non-gold financial investments that produce real returns for citizens, although the strategy has been undermined by gold’s strong performance in rupee terms as the rupee has fallen against the dollar.
Last but not least – and this would cut India’s external demand for gold while meeting domestic demand – the central bank and the government want to make better use of India’s vast existing gold stocks.
Ideas under consideration include various gold-backed financial products that would not require gold from abroad, including an exchange traded fund backed by central bank gold and a scheme under which public sector banks could lend on the physical gold they hold as collateral for loans. “It’s how we can rotate, how we can utilise our gold reserves,” says Mr Narne.
Philip Klapwijk, of Thomson Reuters GFMS, a leading precious metals consultancy, says: “They are quite concerned at the impact of gold imports on the balance of payments and that such a high proportion of savings is ‘sterilised’ by being in gold form instead of being put to productive use.”
In the end, however, it may be market forces – and not Mr Chidambaram’s suggested tax increases or any official scheme to recycle hundreds of tonnes of India’s idle gold – that succeed in suppressing India’s demand for gold imports.
With some currency traders forecasting a rise in the rupee this year, and some commodity analysts seeing the end of gold’s international bull run, gold is likely to be a less attractive investment for Indians than it was.
What is not yet clear is whether the measures contemplated by the Indian authorities will actually curb the volume of gold imports, and so affect the price further.
Mr Chidambaram and other Indian officials are concerned about the apparently unstoppable urge among the country’s 1.2bn people to buy gold jewellery and invest in bullion. There are two main reasons for their hunger for gold: India’s swelling current account deficit and the dangers posed to the stability of the banking system.
India’s current account deficit hit a worrying 5.4 per cent of gross domestic pHow to Make Your Own Bobblehead Doll make your own bobblehead is a fun and simple craft for young children.roduct in the three months to September,China shoes manufacturer Huajian has built a factory outside Adis Ababa, and in some months gold imports accounted for half the gap. The “impact of huge gold imports on external stability” was described this month as “a major concern” by a Reserve Bank of India working group set up to study the issue of gold.
In its draft report, the RBI also spoke of “systemic concerns” arising from the “huge borrowings” of a growing number of so-called non-banking financial companies that lend money to Indian retail clients, storing their gold and gold jewellery as collateral.
One option for Mr Chidambaram,Come and browse our large collection of the latest in stainless steel necklacefor men. analysts say, is to increase the import duty from 4 per cent to, say, 6 per cent in an attempt to stifle demand. The revenue raised would have the beneficial side-effect of helping to trim the fiscal deficit. Higher tax, on the other hand, could simply divert more of the gold trade on to the black market.
In any case, says Kishore Narne, associate director for commodities and currencies of Motilal Oswal commodity brokers, only about 10-15 per cent of Indian consumers are price-sensitive when it comes to gold.that we never had to worry about a shortage of Hair bands.
“It’s part of our tradition and we keep on buying gold,” he says. “It’s our compulsion. We can’t do anything about it.” The stock of the precious metal in India is estimated at between 12,000 and 25,000 tonnes, and increased prosperity in rural areas is pushing demand ever higher.
Another approach,Rudy Project has created a series of Cycling sunglasses, championed by Raghuram Rajan, the government’s chief economic adviser, is to focus not on the immutable desire for jewellery but on gold’s weaknesses as an investment. That means promoting non-gold financial investments that produce real returns for citizens, although the strategy has been undermined by gold’s strong performance in rupee terms as the rupee has fallen against the dollar.
Last but not least – and this would cut India’s external demand for gold while meeting domestic demand – the central bank and the government want to make better use of India’s vast existing gold stocks.
Ideas under consideration include various gold-backed financial products that would not require gold from abroad, including an exchange traded fund backed by central bank gold and a scheme under which public sector banks could lend on the physical gold they hold as collateral for loans. “It’s how we can rotate, how we can utilise our gold reserves,” says Mr Narne.
Philip Klapwijk, of Thomson Reuters GFMS, a leading precious metals consultancy, says: “They are quite concerned at the impact of gold imports on the balance of payments and that such a high proportion of savings is ‘sterilised’ by being in gold form instead of being put to productive use.”
In the end, however, it may be market forces – and not Mr Chidambaram’s suggested tax increases or any official scheme to recycle hundreds of tonnes of India’s idle gold – that succeed in suppressing India’s demand for gold imports.
With some currency traders forecasting a rise in the rupee this year, and some commodity analysts seeing the end of gold’s international bull run, gold is likely to be a less attractive investment for Indians than it was.
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