Among all the countries of the world, Indians have the biggest fascination for gold. We wear it as jewellery and weave it into our saris. We save it for our daughters’ weddings. We invest in it like it is real estate or some ultra blue chip stock. We pray to statues made of gold. We even add it to our food in the form of gold foil. A peasant may not have a bank account, but he will have gold in some form stocked somewhere. We even expect God to share our enthusiasm for the metal when we offer it in lieu of blessings and redemption. Two years ago, a moneylender in Pune, Datta Phuge, had a shirt of gold made for him that had some 3 kg of gold stitched into it and was estimated to cost around $250,000. When I had pointed out how impractical a gold shirt might be, he had told me incredulously, “But it’s gold.”
It is this massive appetite we have for gold that has led India to become the biggest importer of the metal worldwide. Every year, the country imports between 800 to 1,000 tonnes of bullion. Data from January this year shows imports soaring 55 per cent year on year to $1.5 billion worth. A lot of gold is also smuggled in, with passengers concealing gold bars and coins in their luggage, or, as it has happened sometimes, in aeroplane lavatories to be picked up later.
Imports of bullion, however, impose a strain on the country’s finances since they have to be paid in foreign exchange. And there is also a problem with gold that sits idle at home. So long as it is not put into circulation, gold has no ‘multiplier effect’ on the economy. But imagine if these phenomenal amounts of gold could in some way be made part of the economy.
This is what makes the innovative provisions for gold in the new Union Budget so exciting. Arun Jaitley is set to introduce a gold bond, which will work as an alternative to purchasing physical gold, and a gold monetisation scheme that will help investors earn interest on their ‘gold’ investments. All this has been discussed and considered in the past. These new policies will take time to attract Indians at large. It is a challenge convincing Indians to convert the gold they own into bonds, which are really just pieces of paper with a government promise to honour them, since people buy gold precisely because they trust its physical existence and exchange value. Whether a gold bond can have the same attraction—or whether a gold holder will be willing to part with gold ornaments that have great sentimental value—is a good question.
But what is most radical is Jaitley’s third provision for gold in the Budget. He wants the country to start marketing its own gold coin—a sort of national gold coin. The coin will carry the Ashoka Chakra on its face and is expected to be the answer to the country’s massive demand for gold. “Such an Indian gold coin,” Jaitley said in his Budget speech, “will help reduce demand for coins minted outside India and help recycle gold available within the country.”
If the previous two provisions encourage gold—and there are some 20,000 tonnes of estimated gold valued at around Rs 60 lakh crore in the country— to be traded, monetised and used, the Indian gold coin will encourage citizens to use the gold available in the country and not depend on foreign gold coins to meet their needs. Since the Government guarantees the quality of the coin, it might also convince them to convert the gold they already own into these coins. When India imports an estimated 800 to 1,000 tonnes of the metal each year, it results in the expansion of the country’s current account deficit, which erodes the value of the rupee if export earnings do not keep up. The coin will not just attempt to meet the demand for gold within the domestic market, it also hopes to standardise and impose quality control on gold products in India.
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