Krishval Musings

Wednesday, 25 November 2015


Gold has earned its name as the ultimate for excellence. It is a universal metal.
It is sought by both an uncivilized tribal in the jungle to the investment wizard in New York.   It has been hailed as a reliable and all time valuable assets beating the values of Real Estate, shares, and bank deposits. Gold has an instant value all over the world despite having no economic significance like iron, copper or aluminum except for making jewels or as a show of affluence.  
Gold is the king of all metals because of its everlasting quality.  It has the highest density, does not get rusted and not affected by acids and chemicals.  It maintains its shine and quality and remains  un affected by weather or pollution.   Gold is malleable enough for just 1 gram to be hammered into a sheet 1 square meter in size. It can also be made so thin that it appears transparent.   
Economists give merit to gold because it is generally preserved and not consumed like other commodities and are easily encashable in future.

Gold deludes Indians.
 The unveiling of gold ornaments from the Padmanaba Swami temple in Thiruvanathpurm started blowing a storm in the minds of the people.  Media was flooded with opinions and comments on how to make use of the gold. The value was estimated to be a few thousand crores.  Politicians driveled that the gold haul can repay all the debts of the nation and the government of India should take immediate steps in that direction.  Wild estimate reports started pouring about the value of  gold stock in all the temples  and the possession in the hands of individuals.    It is true that the sale proceeds can make India a debt free nation.  Will it solve our economic problems by improving our standard of living? , increase employment opportunities?, reduce the inflation ? and increase our productivity?   These could be possible even without selling the gold if we have a sound system and good governance in place.           
 Gold reserve is not the proof of a nation’s wealth. It is one of the backup values for the currency and its exchange price in the international market.  Prosperity of a nation is judged by the strength of its GDP and per capita income underpinned by an effective and accountable government.  Industrial, technological and agricultural development determines growth and prosperity.   
Gold dominates Indian Economy
The mushroom growth of gold retail outlets all over India is an indication for the   public’s craze for gold.  According to World Gold Council report (2014) India tops the list of consumer demand with 223 tons of gold followed by China 193, USA 67, Russia 47, Europe 90 and Japan 0.7 
Gold and oil cover 70% of India’s current account deficit.  A reduction in gold import by 25% can considerably reduce the deficit, but no one is willing to bell the cat as the gold lobby is strong and influential.  Our gold needs are met by imports only. The gold import has escalated from 688 tons in 1997 to 1020 tons in 2012.
The retail appetite for gold is fast increasing for two reasons 1. The purchasing power of Indians has moved up 2. Gold loan business, provider of easy liquidity for the poor, has steeped from Rs. 2500 crores in 2002 to 50,000 crores in 2011. 
Gold and jewellery   account for 12.5 % of our total foreign trade of US$ 764 billion (2014) and the share of   industrial, technological and agricultural goods are below gold.  Jewellery making seems to be the single large industry of the nation surpassing even the software.  In contrast, the major share of China’s foreign trade is machinery and electro mechanical parts.  While India is starving for infrastructural development we are emerging as the top goldsmith   of the world. The largest gold dealer Rajesh Exports’s turnover of 37000 crores is 75% of the turnover of Infosys or Tata Iron & Steel.
The gold holdings of developed countries are thrice larger than India, however they are stacked to maintain currency value; their retail appetite is very low.  Japan started accumulating gold in the 1990s after it became the second largest economy and a creditor nation.   Developed nations accumulate gold after their successful holistic economic achievement by hard work, innovation, efficient administration of resources and governance, whereas India is putting the cart before the bull/horse.
Though gold, for all practical purposes, considered a luxury is given more importance than other essential commodities due to pressure from social customs and religious sentiments.  Despite having zero utility value, it is sought even by poor people to satisfy their individual or family ego and prestige.   It is surprising that highly educated Indian women prefer gold and jewellery to flaunt their affluence.
Bridling the gold craze is a herculean task.  As long as the strong individualistic feeling and fear of future prevail gold will be the most sought after commodity. NAMO’s drive to popularize bank accounts for the poor is an awakening programme to infuse confidence in the regulated financial market which offers better investment opportunities related to economic growth.  

Dr. Krishnan Arunachalam 

Gold in Padmanaba Swami temple