Privately owned gold needs to be tapped.
As per various estimates, India as a nation possesses anywhere between a staggering 25,000 tonnes to 60,000 tonnes of gold. Though most of this gold is in the form of jewellery, and mostly in personal possession! But even if we pessimistically consider that we possess 25,000 tonnes of gold jewellery and even if we discount 5,000 tonnes out of it, which could be in the form of various alloys that are put to make gold jewellery, then the market value at current price still comes to a staggering Rs.40 lakh crore. Well, it means that there is a minimum of Rs.40 lakh crore lying idle with people... and yet we call ourselves a poor economy!
If not for anything else, these gold ornaments that are being kept in lockers and are taken out just once or twice a year can be mobilised to transform the entire social infrastructure of this country in one shot! As a matter of fact, even after so much of possession, US has an official gold reserve of over 9,000 tonnes, China has over 1,000 tonnes and India manages an offi cial gold reserve of mere 550 tonnes. It means that even if a tiny fraction of the gold kept in the form of jewellery gets mobilised; the official gold reserve in India would be more than the total reserve of these top countries combined together, which would enhance fund mobilisation for multiple purposes, and that too by manifolds.
But then, it is easier said than done. There are quite a few challenges – one of them being that gold buying in our country is greatly influenced by seasonality and is deeply embedded in our culture. So much so that even the price does not influence the sale of gold jewellery, and that is the reason why the demand for gold jewellery in India rose by 67 per cent (last year) in spite of price hike. Th e other challenge is the manner in which gold is perceived in our nation – gold jewellery is a matter of pride which is bought and is kept over generations as a legacy in the family, particularly among women.But there has been some transition in this perception. Breaking the age-old tradition of purchasing gold only as jewellery, more and more people are now buying gold as an investment. And that’s why retailing of gold has also experienced a surge in the recent past, particularly when it comes to gold coins, bars and even gold certificates as commodities for consumers who are looking forward to gold-based investments.
However, trading is still limited when compared to the other parts of the world, on account of the cultural legacies that are attached to the yellow metal as well as the lack of expert insight on trading. So even after the transition, investment in gold has remained an extension to the traditional way, where such bars or coins or certificates are realised during contingencies and not as investments to trade and churn returns. In order to reap benefit from the privately held gold, Indian government needs to design and draft gold-linked investment and tax saving plans. Today, only a few NBFCs like Manippuram and Muthoot are offering gold-linked loan schemes. Both the government and private banks have been quite dormant on these offerings – which is quite strange 'cos schemes would not only benefit individual gold owners to make safe returns (considering that gold prices have been relatively stable as compared to other assets), but would also allow the government to hedge itself against the falling price of currency in the global market. Obviously, as I said earlier, it would be really tough to convince all gold owners to mobilise their gold for investment. But given the scale of reserve we have, it can create a havoc win-win for all the stake holders even if we succeed to convince a few.
As per various estimates, India as a nation possesses anywhere between a staggering 25,000 tonnes to 60,000 tonnes of gold. Though most of this gold is in the form of jewellery, and mostly in personal possession! But even if we pessimistically consider that we possess 25,000 tonnes of gold jewellery and even if we discount 5,000 tonnes out of it, which could be in the form of various alloys that are put to make gold jewellery, then the market value at current price still comes to a staggering Rs.40 lakh crore. Well, it means that there is a minimum of Rs.40 lakh crore lying idle with people... and yet we call ourselves a poor economy!
If not for anything else, these gold ornaments that are being kept in lockers and are taken out just once or twice a year can be mobilised to transform the entire social infrastructure of this country in one shot! As a matter of fact, even after so much of possession, US has an official gold reserve of over 9,000 tonnes, China has over 1,000 tonnes and India manages an offi cial gold reserve of mere 550 tonnes. It means that even if a tiny fraction of the gold kept in the form of jewellery gets mobilised; the official gold reserve in India would be more than the total reserve of these top countries combined together, which would enhance fund mobilisation for multiple purposes, and that too by manifolds.
But then, it is easier said than done. There are quite a few challenges – one of them being that gold buying in our country is greatly influenced by seasonality and is deeply embedded in our culture. So much so that even the price does not influence the sale of gold jewellery, and that is the reason why the demand for gold jewellery in India rose by 67 per cent (last year) in spite of price hike. Th e other challenge is the manner in which gold is perceived in our nation – gold jewellery is a matter of pride which is bought and is kept over generations as a legacy in the family, particularly among women.But there has been some transition in this perception. Breaking the age-old tradition of purchasing gold only as jewellery, more and more people are now buying gold as an investment. And that’s why retailing of gold has also experienced a surge in the recent past, particularly when it comes to gold coins, bars and even gold certificates as commodities for consumers who are looking forward to gold-based investments.
However, trading is still limited when compared to the other parts of the world, on account of the cultural legacies that are attached to the yellow metal as well as the lack of expert insight on trading. So even after the transition, investment in gold has remained an extension to the traditional way, where such bars or coins or certificates are realised during contingencies and not as investments to trade and churn returns. In order to reap benefit from the privately held gold, Indian government needs to design and draft gold-linked investment and tax saving plans. Today, only a few NBFCs like Manippuram and Muthoot are offering gold-linked loan schemes. Both the government and private banks have been quite dormant on these offerings – which is quite strange 'cos schemes would not only benefit individual gold owners to make safe returns (considering that gold prices have been relatively stable as compared to other assets), but would also allow the government to hedge itself against the falling price of currency in the global market. Obviously, as I said earlier, it would be really tough to convince all gold owners to mobilise their gold for investment. But given the scale of reserve we have, it can create a havoc win-win for all the stake holders even if we succeed to convince a few.
Respected Prasoon Sir,
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Due to unfortunate circumstances, I have been trying to contact you but to no avail.
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Respected Prasoon Sir,
ReplyDeleteI have a great honor in studying in an institute where you as a great strategist, Blogger works...
Due to unfortunate circumstances, I have been trying to contact you but to no avail.