The revival of the Kisan Vikas Patra (KVP) in the wake of heavy gold demand that threatens to upset our current account deficit may not be the right remedy, yet. Perhaps a tax-free bond - Know Your Customer then becomes less diffident - would score more in popularity than KVP. It is essential that the nation is taught to become "gold literate".
The steep fall in gold prices is an opportunity to rationalise the nation's traditional enchantment with the yellow metal. Currently, the gold stock in India is estimated at 18,000 tonnes, valued at around $900 billion. The official gold held by the Reserve Bank of India amounts to 570 tonnes, constituting 9.5 per cent of forex reserves. Meekly surrendering to erratic price variations is foolish. We must recognise the value of gold as a resource and use it to contribute to the strength of the economy. Attempts are afoot to securitise gold i.e. buy gold against bonds issued by banks, and create an active market for the gold bonds. New instruments are also being proposed to be substitutes for holding physical gold and must lead to the new perception of the paper gold.
As and when the rupee is made fully convertible, gold securities can become an important instrument to sell or buy against the dollar, to filter excess capital inflows or impact the external value of rupee, without burdening the government in the monetary economy. A deep and liquid paper gold market will have the collateral benefits of providing a wider array of investment opportunities for retail investors. Easier said than done in a nation, ever charmed by the "yellow fever". Witness the mad rush at the jewellers today as prices drop.
R Narayanan Ghaziabad
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