Nidhi Nath Srinivas ET
The Indian consumer — that’s us — is currently public enemy No. 1. We are apparently responsible for leaving the nation’s balance sheet in a shambles with our insatiable lust for gold.
If government and the Reserve Bank of India (RBI) had their way, anyone spotted buying gold would be flayed. Luckily, we are still not that sort of country.
But both are doing everything possible to punish us. We can’t wear our own jewellery above Rs 1 lakh on an overseas holiday. We can’t buy coins easily. The paperwork at a jewellery store is designed to turn away everyone except the most determined. The higher customs duty intends to make gold prohibitively expensive.
Plus, jewellers are being bludgeoned out of business. They can’t import gold. Gold will be rationed through government-owned banks, which will cater only to “genuine” demand. And they are being threatened with draconian laws.
Are we really to blame? Who started the gold coin culture in India? Not the family jeweller, not the consumer. It was GoI and RBI that encouraged high-street banks, and even the post office, to start peddling gold coins about five years ago.
Banks did their job so enthusiastically that, soon, buying a gold coin was easier than opening an account. It was GoI that had okayed exchangetraded funds that allow punters to buy limitless gold on paper. GoI and RBI blessed gold loan companies as microfinance by another name.
Neither pondered the impact of these moves on consumer behaviour and the economy. Imported coins don’t create local jobs, don’t allow local value addition and don’t open opportunity to earn foreign exchange through exports. Yet, they were promoted aggressively.
Well, the chickens have come home to roost. Now that the marketing is clearly a huge success, and we have learnt to appreciate even the tiny 5-gm coin, it is too late to complain.
Moreover, why should GoI and RBI complain? Petrol is the largest item on our import bill at $125 billion. But no one is suggesting we shut down car factories, and go back to the tonga and cycle-rickshaw.
As C Rangarajan, the Prime Minister’s economic advisor, says in his overview of the economy, “Oil is a big factor in our strained external payments, but by no means the surprising one.” We have accepted that petrol is vital for modern life.
Cooking oil is the third-largest item on our import bill. Till the early 1960s, no one in India had tasted palmolein. Even after it was introduced by Indira Gandhi in ration shops, consumers shunned it. Forty years later, it is India’s top-selling oil. The government’s marketing efforts paid off. We have acquired a taste for it and spend a cool $10 billion annually.
In both cases, the government has accepted that we urgently need these sources of energy. Instead of trying to beat down consumer demand, the government is trying to find other solutions to augment petrol and cooking oil supply. That is wise.
So, why does this wisdom blow a fuse when it comes to gold? Senior economists, policymakers and RBI all have acknowledged that gold is popular because it is the only asset that the poor can one day aspire to buy. There is nothing in the market that can replace it.
More important, gold in India is about the daughter’s share in family wealth, the perfect wedding gift, our idea of beauty and high status. It is part of our cultural DNA. It makes us who we are. A five-fold rise in prices in as many years has not dented our willingness to spend on it.
Ideally, the government should embrace this love and find ways to use it profitably. Dubai doesn’t produce any gold. Yet, it has been able to promote itself as the ultimate destination for buying and trading gold.
London doesn’t produce gold either.
But it has always been the hub for price discovery and has some of the safest vaults on the planet.
All this takes gumption and a farsighted vision of what gold can really do for the economy.
Instead, GoI and RBI are treating us like addicts.
They are hoping that giving us the cold turkey will set things right.
But you can never fight human nature.
Clampdown on gold will be like the prohibition on liquor in Gujarat.
Consumers and smugglers will have the last laugh.
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