Thursday, June 6, 2013

Gold v/s Current Account Deficit

India economy situation is grim.

Our current account deficit is bloating uncontrolled and the biggest contributor to this is the increasing import of gold. Our citizens are in an increasing rush to buy gold. Statistics show that India has imported an average of 70 tonnes of gold per month during the last fiscal and this import does not seem to stop.

The government is exercising its control to make gold investment difficult, but to no avail

The government has increased in import duty of gold. The finance minister has asked the banks to stop selling gold.

I feel the government is treating the symptom and not the cause. It needs to speculate as to what makes gold so lucrative for the Indian investor. Our policymakers need to create a reliable and safe investment vehicle where people can put their money, instead of gold.
Although, the immediate goal for the government is to somehow stop this inflow of gold, it should to take into consideration the fact that the Indian investors have funds at hand but they do not have venues to invest these funds into.

The financial wizards at the nation's helm also need to evaluate why people do not want to invest in some of the other erstwhile popular investment options like some entrepreneurship venture or shares or real estate or some other business.

Apparently more needs to be done to stop this gold rush.