New products proposed to end gold rush

“The rising demand for gold is only a “symptom” of more fundamental problems in the economy.

Written by ENS Economic Bureau | New Delhi | Published: February 28, 2013 12:41:09 am

Airing its concern over the rising demand for gold and its contribution to the widening of the country’s deficit numbers,the Economic Survey has proposed new products such as inflation-indexed bonds and called for facilitating easier access for investors to financial products in order to wean them away from gold.

“The rising demand for gold is only a “symptom” of more fundamental problems in the economy. Curbing inflation,expanding financial inclusion,offering new products such as inflation-indexed bonds,and improving saver access to financial products are all of paramount importance,” the Survey said.

In India,the document noted,the share of financial savings vis-a-vis physical savings have been on a decline over the last few years.

While financial savings accounted for around 55 per cent of total household savings in 1990s,it came down to 47 per cent in the decade from 2000-10 and in 2011-12,it stood at 36 per cent.

“In fact,household financial savings were lower by nearly Rs 90,000 crore in 2011-12 vis-a-vis 2010-11,” it said.

The Survey said that rise in gold imports is one of the factors contributing to India’s high trade deficit and current account deficit (CAD) in 2011-12,forming 30 per cent of its trade deficit.

It noted an RBI study,which said that had gold imports in India grown by 24 per cent instead of 39 per cent in 2011-12,the CAD would have been lower by approximately $6 billion and the CAD-GDP ratio would have been 3.9 per cent instead of 4.2 per cent. The Survey has even proposed a reduction in gold purchase to curb the high CAD.

“Given soaring energy and transportation needs,since there seems to be little we can do to temper oil imports,gold is the component that needs to be contained to bring the current account deficit back to a comfort zone,” it said.

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