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This happens only in India. A Sadhu in UP dreams that 1000 tonnes of gold is buried under the ruins of a palace and the government starts digging in the hope that the claim is true. And if that was not enough, there is a public interest litigation that asks the Supreme Court to be part of the dream and monitor the digging exercise. The court obliges.
The good samaritan Sadhu is just what the Finance Minister had prayed for. Yogi Swami Shobhan Sarkar wants the gold, when found, to be used to help India come out of its economic slowdown.
Now markets are said to discount a rumour before it becomes a news. But that does not seem to be the case in the gold market. Gold prices continue to move higher despite the possibility of a likely supply of 1000 tonnes, which is more than what the country imports in a year. Well, markets do not seem to be discounting dreams.
But it will be forced to when the first sign of the shining metal will be visible from under the palace. The world market is also expected to take notice of this find as and when the discovery is made. Every year nearly 4000 tonnes of gold is supplied globally by miners,resellers and scrap dealers. This discovery accounts for around one-fourth of the total supply, enough to destabilise the market in the short run.
However, let's look at what the finance minister, P Chidambaram would be planning to do when he gets his hand on the gold. A sharp man that he is, he would have already calculated that by selling 1000 tonnes of gold he can raise around $42 billion or Rs 260,124 crore.
Here are five things that the FM can do with this money.
1) He can stop worrying about the current account deficit, since dollars will no longer be needed to spend to buy gold. Expect the rupee to strengthen sharply and touch or even cross the 50 mark to the dollar.
2) The money collected is enough to fund two years of food security bill based on some of the estimates. Perhaps he would be tempted to sweeten the deal further, and improve his image with the high command.
3) The amount is equivalent to nearly twice the market capitalisation of Coal India and higher than that of ONGC, the priciest of the PSUs. In other words, the FM will get more money by selling the gold than by divesting govt stake in Coal India and ONGC. No need for divestment then. No need to sell our precious public sector enterprises.
4) This amount has the potential of reducing the fiscal deficit by 50% for the present fiscal, bringing it down to 2.4% of the GDP. Take that IMF.
5) This is 50% more than the tax collected by the government from individual tax payees.One can hope that the FM in a jubilant mood might allow a one year tax holiday to all of us. No harm in day dreaming.
If you thought this is too good to be true, think again.
Narendra Modi in a speech today said that government can get more money than they are digging for if they take steps to bring back those stashed in Swiss Bank accounts.
Like we said, we are only analysing a dream.
