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Lopsided priorities
The report by the World Gold Council (WGC) that demand for gold in India has gone up by a staggering 45 per cent during the 12 months of the previous year must be seen as an indictment of the process of liberalisation, insofar as such a level of consumption in the country easily points to the nation's lopsided priorities. There is little doubt that the yellow metal is largely used in the form of jewellery and the fact that the nation's wealth is being hoarded in such a manner reflects poorly on the quality of the consumer. One explanation for the indifferent growth in capital formation as much for the lack of effective demand for manufactured goods, presently mirrored in the emergence of recessionary conditions in different pockets of industry, is the locking up of substantial funds in gold jewellery. As far back as the sixties the RBI had voiced its concern over the hoarding of wealth in the form of gold and now if the country consumes this metal annually in the region of over 700 tonnes, obviously, a
massive level of wealth is not available by way of purchasing power for what the country produces. Unfortunately, no government has ever mustered the courage to come out with a policy of discouraging investment in jewellery, either by way of incentives for alternative uses or deterrents for purchase of jewellery. Curiously, under Janata rule import was substantially liberalised and there has been a further liberalisation in subsequent years.It is true that a part of the demand is by way of production of jewellery for export and there is a justification for such a demand growing. Clearly, the government has to make a distinction between export and domestic consumption. While it is not going to be easy to prevent diversion of export production to the domestic consumers, a serious effort has to be made to prevent blocking of income in jewellery. In the past, calculations used to be made of the likely flow of resources into capital formation through curbs on hoarding of wealth in gold ornaments, but curiously
despite the resource crunch deepening no suggestions have been made in recent years for a substantial saving of funds in this manner for purposes of financing critical investment. The Reserve Bank has confined itself to reporting on the magnitude of gold loans from time to time provided by commercial banks. Nevertheless, it is not too late to formulate a strategy for minimising the allocation of household income for purchase of jewellery.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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