Gold is not good for Indian Economy

Gold not Good

You must have heard & read messages like: Save earth. Save nature. Save water. Save trees. Save electricity. Save tigers. Save girls.  Did you ever hear something like- ‘Save economy’. Yes, that is what I am going to ask for today.

I was analyzing impact of this year’s Union Budget on common man. Increase of import duty on gold from 1.5% to 3% caught my attention. They just made it double, 1.5% to 3%, which after taking the bullwhip effect into count will mean that per 10 grams of gold, we pay approximately Rs 1500 extra.  I wondered why the government would raise prices of gold to that hefty level in a country which was known as ‘sone ki chidiya’. Being an argumentative Indian, I could not stamp the step as a good or bad. I went deeper and understood the reasoning. Let me explain the logic behind.

Indians are crazy on gold jewellery and hence they do not buy gold in kilograms and quintals. They buy gold in tonnes. Besides in-country production, India’s annual import of this yellow sparkling metal is 1000 tonnes. India accounts for one third of total world demand of gold. India’s GDP is no where closer to that of China & USA still the demand for gold in India is 140% of China and 480% of USA. This demand converts into an outflow of 60 billion USD which is second largest after our spending on crude oil.

What do we get in return? - A Non-Performing Asset. Bartering of 60 billion USD for non performing asset is not a wise decision for our economy. I personally, am not even ready to call it an asset. My mother does not want to keep it as she is afraid of thieves after a robbery in my neighborhood. My wife does not want to take the extra stress of keeping it with her, as through newspapers, she stays updated on mishappenings in Gurgaon. I don’t even want to touch it after I lost a costly diamond ring. Girls and ladies wear artificial jewellery in parties and marriages now a day. So it becomes a hard core liability and we need to pay recurring charges to bank for keeping these in locker. Every gram of imported gold also means that the country’s savings flow out to other countries and create jobs there.

India has around 30 gold mines. But quality of country's gold bearing ore is extremely poor and as a result, it becomes uncompetitive to produce this precious metal. Each tonne of Indian gold bearing ore yields only 22 gms of gold. Experts speak that the exercise is uncompetitive if the output is less than 47 gms of gold per tonne. So government might declare a full stop on production of gold in India. This further will increase the import quantity, rates and taxes on gold which in turn will lead to even bigger outflow of money.  These all will weaken the Indian currency and hence a blow to the economy. The government is thinking to undertake extensive education campaigns because if not controlled the import of gold would touch 100 billion USD in 2015.

Therefore, just like - Save earth. Save nature. Save water. Save trees. Save electricity. Save tigers. Save girls. There will be no wonder if government comes with a bill that all the jewelers need to write a message in their show rooms ‘Please minimize your gold shopping and save economy’.

You can become responsible citizens and avoid hurting our economy by not buying or at least minimizing the purchase of gold.