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[image: Photo] Dr. Prasanna Mishra WHILE DEMAND AND PRICE KEEP INCREASING FOR GOLD, BPL FAMILIES WOULD NEED GOVERNMENT HELP FOR DAUGHTERS -By Dr. Prasanna Mishra BlogPosted By: hindtodaynews on:8/7/2011 7:51:10 AM Dr. Prasanna Mishra

One finds reference to gold in ancient Indian mythology and religious scriptures. Gold is believed to be the metal with maximum potency and healing effect on the user. Karna, known for charity and sacrifice, was said to have been gifted with golden armour and a pair of earrings since birth. The armour protected him from the deadliest of weapons. It was deceitfully taken away from him by Lord Indra which eventually led to Karna’s death. Love for gold by Indians is not only demonstrated by the their fondness for jewellery, it also manifests in the use of gold in our great temples like the Golden Temple at Amritsar and in the Temple of Lord Venkateswara at Tirupati. As per one assessment, India is home to over 18000 tonnes of gold, accounting for about 12% of the global stock. According to figures with the Multi Commodity Exchange of India, the total stock of gold in the country is about 13,000 tonnes, about 9 percent of the world stock. India is the world’s largest consumer of gold in jewellery, with an annual demand estimated at about 800 tonnes. While the country exports about 60 tonnes of the metal annually, it imports about 600 tonnes. In 2009, total Indian gold demand reached US$19 billion, accounting for 15 per cent of the global gold market. Since the last ten years, the value of gold demand in India has increased at an average rate of 13 per cent per year. In India, gold is perceived as a symbol of security and as a sign of prosperity. Purchases of gold jewellery are considered as a form of liquid and tradable investment. Gold jewellery accounted for around 75 per cent of total Indian gold demand in 2009.

Currently only a few designated agencies such as MMTC are allowed to import gold bars. Since 1997 the RBI has authorised these agencies, including commercial banks to import gold, but only for sale or loan to jewellers and exporters. At present 13 banks are active in the import of gold. Under a decentralized gold import regime, there could be as many as 2,000 importers. There seems to be a case for developing a gold deposit market in India. Consumers could then buy standardised gold of smaller denominations at retail counters, and could keep them with banks in exchange for gold certificates. The development of a more robust market for the yellow metal will also kill the residual hawala that might be taking place through gold smuggling because of the marginal premium commanded by the metal in the domestic market, caused at present by restrictive imports. A thriving gold deposit market in the future could also help monetise large amounts of gold lying with households. This could help divert such savings for productive investments in the economy.

Gold price has been moving northward. While gold per gram was available at only Rs16.82 in 1974, a gram of gold cost Rs 2301.91 on July 29, 2011 representing an increase of 13588.38%. Yet we are nowhere in a mood to avoid purchasing gold. The trading community as well as analysts are hopeful that the growing middle class; the growth of our economy and our abiding faith that weddings would have to be associated with gold ornaments are factors that lend strength to such assessment. Gold has been in the official reserve of various countries though its share on the total reserves varies considerably from country to country. In case of USA, the gold reserve of 8134 tonnes represents 72% of the official reserve. Euro area holds 10793 tonnes of gold representing 58% of the official reserve. In case of India gold held by RBI is 558 tonnes representing 7% of the official reserve. In case of China, gold held is 1054 tonnes but it is only 2% of the official reserve. Reserve Bank of India purchased 200 tonnes of gold in 2009 when the price was Rs 49000 per ounce (28.35 grams). This gave a signal to the trade that purchasing gold at this rate was a sound proposition.

Though India is the largest gold market in the world, millions of households do not possess the precious metal. Consumption intensity of jewellery, which means per capita consumption of jewellery, is only 0.4 grams in India. Per capita consumption in Thailand and China is still lower. In case of countries like Saudi Arabia; Turkey and Italy, per capita consumption is higher. How much gold one buys in a year in Orissa should be a difficult question to answer; but it is worth making a guess. In case of Orissa we may assume that the per capita jewellery consumption in a year would be around 0.3 gram. On this basis, one would think that the people of Orissa would be buying gold to the extent of 10000 to 12000 kilograms (ten to twelve tonnes) per year worth Rs 2500 to Rs 2750 crore.

Gold has been closely tied to Indian weddings. Purchases for weddings account for half of the annual demand for jewellery. Half of our country’s population comprises persons below the age of twenty five and it is expected that there would be around 150 million weddings over the decade. In case of Orissa we can anticipate 5.5 lakh weddings per year. I would assume that in about four lakh weddings, brides would be from BPL (Below Poverty Line) families. I would suggest that government gift a Mangal Sutra having five grams of gold to these brides. This measure would mean an annual buying of two tonnes of gold, the cost of which at the present rate would be around Rs 460 crores. Such a measure would promote economic empowerment of the women. Various political parties may take note of this proposal and consider making appropriate announcements at the opportune time.

Should economically well off people of Orissa prefer to buy gold like rich people of other states? Should we treat gold as a necessity or luxury? These issues merit some discussion. Some years ago I invested on mutual funds. After a few years there was turmoil in the market and prices dipped. I held on to my investments for sometime and then started offloading. In some cases I gained and in some I lost. On the whole, the return on my investment worked out to about eight percent per annum. I bought a car for Rs five lakh and after four years, sold it for only Rs 1.50 lakh. I disposed of a television set purchased for Rs 20000 some years ago for only one thousand rupees. For my music system there was no buyer and I gifted it to a reluctant beneficiary. Had I invested in gold in stead, I would have been much better off. I am sure such reasoning would be motivating many whom I see in jewellery shops in Bhubaneswar. People who have money and no need for ornaments, are increasingly buying coins or bars. This trend would continue. Parents would continue to buy gold jewellery for their daughters for wedding. Craving for gold by families who do not have it would also increase. However, there is need for moderation instead of obsession in our approach to gold. Those who watched the live telecast of the wedding of Prince William and Kate Middleton (now Duke and Duchess of Cambridge) on the 29th April, 2011 would surely remember the elegant ring (made of rare Welsh gold which is in use by the Monarchy in Royal weddings for 88 years) the prince put in the finger of his wife. That should be our approach towards gold as well. Let’s buy just that much gold for the bride that is absolutely necessary. After all a woman loves her man for his qualities; not for the gold he gives her.

*( The writer is a former secretary to Govt. of India ) *