Gold mania......a big trouble for India

Indians are easily the world's most voracious buyers of gold. So as prices fall, demand should rise, right? Conversely, as prices rise, demand should fall, right or wrong ? 

 

The answer is wrong. 

 

Experience of the past few years suggests that Indians buy gold with an apparent disregard for price. Imports of gold and silver have grown by 30% in volume in the five years up to 2012. They now rank in value second only to petroleum and amount to about US$ 50 bn annually. Gold and silver imports during April, 2013 jumped by 138% YoY. For the month of May the country imported 162 tonnes of gold!!! 

 

That is a headache for policy makers because gold imports have a big impact on India's current account deficit. As a result the government is planning to introduce more steps to curb gold imports. 

 

This may include banning sale of gold by banks. They may also review export import policy on gold. Last month, the RBI had imposed curbs on import of the yellow metal by banks. Besides, it has also put restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs. 

 

Burdened with a heavy import bill, today Rupee plunged to a life time low of 58.15/dollar. Indians obsession with gold is pushing the rupee on a downward spiral.

 

That is the price country has to pay for various forms of madness and mania, gold included.

 

 

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