IMPACT OF INDIA'S GOLD RUSH BY ROHITH BHANDARY

IMPACTS OF INDIA’S GOLD RUSH

Contents • INRODUCTION• WHAT IS GOLD?• VARIOUS USES OF GOLD• IMPORTANCE OF GOLD IN INDIA• WHY INCREASE IN DEMAND OF GOLD IN INDIA• IMPORT OF GOLD IN INDIA• IMPACTS OF GOLD IMPORTS ON VARIOUS

FACTORS• STEPS TAKEN BY GOVERNMENT FOR REDUCING

IMPORT• STEPS THAT SHOULD BE TAKEN BY

GOVERNMENT TO REDUCE IMPORT• CONCLUSION

INTRODUCTION

India is known to be among the largest importer of gold in the world. It is well known that demand for gold in India is influenced by many social, economic , and cultural factors. The price of gold , rural income distribution, quantum of black money rate, and general price level are factor for gold demand in India

WHAT IS GOLD?

Gold is a softy, shiny, and ductile metal and is a chemical element with the symbol ‘Au’ and atomic number 79. Pure gold has a bright yellow.

What is Gold???

USES OF GOLD

JEWELLERYFINANCIAL GOLDINDUSTRIAL USE

IMPORTANCE OF GOLD IN INDIA

Importance of gold determining status:

1.Elite class2.Middle class 3.Poor class

WHY INCREASE IN DEMAND OF GOLD IN INDIA?

Lack of alternative investmentSafe – haven option for investmentEasily pledgedTransactions are mainly on cash basisSpecial eventsGain against hard currenciesRural area people keep their money invested on

goldEasy to keep

IMPORT OF GOLD IN INDIA

India imported around 162 tonnes of gold in May 2013 up from 142.5 tonnes in April 2013, recording a 138% increase in imports made in a year earlier .

TRENDS IN GOLD IMPORT IN INDIAYEAR IMPORT OF GOLD(Rs. C) GROWTH RATE (%)

1999-00 17991 ...

2000-01 18829 4.7

2001-02 19889 5.6

2002-03 18608 -6.4

2003-04 29946 60.9

2004-05 47348 58.1

2005-06 47951 1.3

2006-07 65440 36.5

2007-08 67330 2.9

2008-09 95324 41.6

2009-10 135878 42.5

2010-11 184742 36.0

2011-12 269563 45.9

IMPACTS OF GOLD IMPORTS ON VARIOUS FACTORS

WIDENS CURRENT ACCOUNT DEFICIT

AN UN-PRODUCTIVE INVESTMENT

INCREASES THE BLACK MONEY CERCULATION

DECREASES THE FOREX RESERVE

IMPACT ON SENSEX

IMPACT ON INTEREST RATES

IMPACT ON EXCHANGE RATES

IMPACT ON INFLATION

IMPACT ON DOLLAR

PRICE OF THE GOLD AFFECTS THE COUNTRIES THAT IMPORT AND EXPORT IT

STEPS TAKEN BY GOVERNMENT FOR REDUCING IMPORT

• The Government has raised the import duty on gold to 10% from 8%.• Banks have been instructed to stop lending against gold and also against offering

loans to buy gold.• The RBI said imports of gold against both suppliers credit and buyers credit would

now have to toe the line of 100 percent cash margins. It also said imports of gold on an unfixed price basis also had to be on a 100 percent cash margin basis.

• Introduction of Gold ETFs to reduce the physical demand of gold. • Any import of gold on consignment basis by both nominated agencies and banks

shall now be permissible only to meet the needs of exporters of gold jewellary.

STEPS THAT SHOULD BE TAKEN BY GOVERNMENT TO REDUCE IMPORT

• By increasing various taxes on import and purchase of gold.• By offering inflation-protected bonds to damp demand for gold and offer a

hedge against inflation.• The government could open deposits of gold at banks by customers.• Better documentation of gold sale and purchase.• Increase the reach of Banks.• Liquidity quotient of alternate investment instruments.• Massive education campaign must be launched to create awareness

amongst the public.• Recycling of domestic gold.• Limits on the volume and value of gold to be imported by canalising

agencies and nominated banks.

CONCLUSION