Gold imports destroying Indian economy?

Discussion in 'Economy & Infrastructure' started by Yusuf, Sep 5, 2011.

  1. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,274
    Likes Received:
    11,287
    Location:
    BANGalore
    Fascination with gold hampering India's growth story

    NEW DELHI: The glitter of gold is taking the shine off India's growth story. According to World Gold Council, India's gold imports rose 60% in April-June 2011 from a year ago, as people snapped up the timetested hedge against inflation. India has always been a huge gold consumer, but the yellow metal is now our second-biggest import, behind crude, up from fifth place in 2007-08.

    Fascination with gold hampering India's growth story - The Times of India
     
  2.  
  3. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Joined:
    Feb 19, 2009
    Messages:
    4,434
    Likes Received:
    1,719
    Location:
    Land of the GODS - "Dev Bhomi".
    is it really being blocked as projected?

    what is really happening is, when the commodity gets imported, then the money moves out, which is where the real loss is for the indian economy, not in storage. people exchange money at the time of buying it, which means the money exchanged within the country is a part of the economy and is in circulation and there is a multiplier effect to it, but yes there is a one time loss, and that is right at the beginning at the time of import, not at the last stage.

    now look at the bigger picture, when you import, someone is getting money as well, which means globally even that money is in circulation, and indians in turn are making some other economy churn money.

    here people are making investments, which means this commodity is giving returns even when in storage.
     
    trackwhack likes this.
  4. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,274
    Likes Received:
    11,287
    Location:
    BANGalore
  5. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,274
    Likes Received:
    11,287
    Location:
    BANGalore
    TR, I think the point is productivity of the money. Money spent on gold especially in making ornaments is a waste. Its not going to come back into the economy. But if the same money is put into business or invested in companies, it helps the economy grow.
     
    Oracle likes this.
  6. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Joined:
    Feb 19, 2009
    Messages:
    4,434
    Likes Received:
    1,719
    Location:
    Land of the GODS - "Dev Bhomi".
    Yusuf,

    i seriously suspect productivity to be the real concern here, the subtle message that comes across to me is, how is this money going out in circulation, which is what is worrying the bigger players in the market. with gold largely being brought through retail and ending up as savings, the money in circulation is not going in the economy through an organised system (read the banking system) which in turn can make money on that.

    mind you the banking system has pretty much done a monopoly on the savings segment and they would want a pretty strong hold on that, something that is not challenged, which is being challenged by the retailer in the market when he sells gold.

    we in fact can not discuss productivity factor till the time we dont get a sense on how the exchanged money circulates in the economy, the multiplier effect on it, and detailed comparative analysis with other modes of savings. it is like saying black money doesnt help the economy, which is myth, the only thing that black economy doesnt do is not generate taxes for the government, but it is out there, people are making money on it, and the economy is growing.

    other than that the real loss is at the time of import.
     
  7. Oracle

    Oracle New Member

    Joined:
    Mar 31, 2010
    Messages:
    8,120
    Likes Received:
    1,541
    Location:
    Bangalore, India
    If I am not wrong, the amount of gold a country has, the amount of money it can print. The economy grows.
     
  8. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,274
    Likes Received:
    11,287
    Location:
    BANGalore
    TR, gold and Indian love affair with it over 1000s of years is well known. Gold for most is not a saving but a status symbol. Ornaments are not savings. Once gold comes into the house, it's rarely sold for money. Bo body buys gold coins/biscuits as a saving to sell a year later or something. That is done only by institutional investors, MFs, big private investors who keep juggling between shares and gold. In India, selling of gold means the family has hit bad times. No one sells.

    On the other hand, say I have 10 lac rupees that I invest in business. Depending on how I rotate it, say trading with it, I buy goods worth that amount and sell it for a profit, say @20%. I will charge tax on it. So gift gets sales tax and then I will pay IT on the profit. Suppose I go through 3 such cycles a year, means I make 6 lacs on which I will pay 35% tax as IT, plus the sales tax.

    The goods I trade in are manufactured in India which means I helped in manufacturing sector grow as well and they too contributed to te economy.

    Compare this with me buying gold ornaments worth 10 lac and keeping it in bank lockers and taking it out to wear on occasions!
     
  9. SLASH

    SLASH Senior Member Senior Member

    Joined:
    Feb 5, 2011
    Messages:
    1,156
    Likes Received:
    458
    Well i think gold used for ornaments is still fine. You can always sell them just like gold. Depending on the style and of course the weight you will get the money back. Atleast this way Gold is being utilised rather than just lying the safe.
     
  10. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,274
    Likes Received:
    11,287
    Location:
    BANGalore
    Slash read my earlier post about gold ornaments. No one sells it. Not in India. Gold is a social and status symbol.
     
  11. SLASH

    SLASH Senior Member Senior Member

    Joined:
    Feb 5, 2011
    Messages:
    1,156
    Likes Received:
    458
    We can get loan against gold as collateral. So is it buying gold is as good as an investment as buying property?
     
  12. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,274
    Likes Received:
    11,287
    Location:
    BANGalore
    No doubt mate, but it comes to that only in times of crises.
     
  13. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Joined:
    Feb 19, 2009
    Messages:
    4,434
    Likes Received:
    1,719
    Location:
    Land of the GODS - "Dev Bhomi".
    gold indeed is an investment tool, which helps savings and diversifies the investment portfolio. mind you, your savings in the banking system, in the saving a/c/FDs, or buying government bonds, securities are all investment tools. gold has in the past 6 years given a return of 4times. looking at the high interest in the end market, banking and financial institutions have also jumped in to make the most out of it by providing various investment products offered dealing in gold for the retail investor. think about it, is investment in shares not a saving that will yield returns in the end? what is the investor looking for by saving the amount in the bank? gold or any other commodity is no different, yes the risk remains but so is the case in the banking system, what if a bank goes bankrupt, or there is hyper inflation or there is a war and government needs endless supply of money and it doesnt want to inflate the economy with cheap money, then they will confiscate all the money in the banking system and the return that you and i are assured of is to the tune of just rs1,00,000 no matter how big a saving. as a retail investor and if you have a demat a/c, you and i can daily trade in gold, same is in the market out there, you buy from the market, sell it in the organised/unorganised sector, one ends up making good money.

    not all gold bought in the retail market is in the form of jewellery. there is limit to which a household spends on jewellery, beyond that the money spent on gold ends up as an investment with the intention of getting a better return on the savings made. a good chunk get bought as biscuits, coins and ends up in bank lockers.

    when you put money in a business the intent is different to money spent on gold as an investment tool or bought as a jewellery. better comparison would have been money not spent but saved in the bank or in property or shares etc and the return on it where the intent is pretty similar. now, once you have bought the gold either for investment purposes or as jewellery, the money is no more in your hands but in the hands of the business man who sold the gold to you, that business man will not be putting the same money in some locker but will circulate it, he will also rotate it depending on his capacity, he will also generate profit, pay taxes on it.

    yes, i agree on the point that when you spend in business and if the manufactured good is in india then the money stays and multiplies in india, and that i have said in the beginning, the loss is at the start when the gold is imported which means the good amount of money moves overseas, but mind you that can be said for all sorts of imports, and so the stress, we need to get self sufficient in every form of manufacturing goods.
     
  14. SLASH

    SLASH Senior Member Senior Member

    Joined:
    Feb 5, 2011
    Messages:
    1,156
    Likes Received:
    458
    Well a lot of people do use it as collateral to get loans. This has been used for many centuries.
     
  15. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

    Joined:
    May 25, 2009
    Messages:
    10,233
    Likes Received:
    3,896
    Location:
    Holy Hell
    A lot of that money comes back as remittances. Last I heard it was $55Billion for last year. So, I don't think gold trade is taking the shine of anything.

    Rather oil takes the shine of things, figuratively as well as literally.
     
  16. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Joined:
    Feb 19, 2009
    Messages:
    4,434
    Likes Received:
    1,719
    Location:
    Land of the GODS - "Dev Bhomi".
    agree, and the same is true for anything which is consumed and leaves no trait, cant be reused and has no resale value and are imported. be it consumer goods, confectioneries/veggies/meat/fruits, medicines, petroleum good, etc but yes one good thing about our petroleum imports, most of it is in the crudest form and we have been refining it and then exporting it, which has been showing in our exports lately.

    about the remittance, well i have a different take, which is about productivity. question is, how well does that 55b usd get used in the economy which is channelled back in india through the banking system and most of it ends up as savings and not directly forms a part of consuption, and let us not forget not all the money in the banking system ever makes it to the economy by way of loans, so a large chunk of that 55b usd is only there in the books, and not in the market in the real sense and yielding returns, and what if the same high end, high skill based talent was working in india? will their contribution then have been much more to the economy than those 55b usd? chances are yes, and many time more and not just that, their high skills would then have attracted a lot of overseas investments, which forces on to question the quality of those 55b usd.
     
  17. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,553
    Likes Received:
    6,564
    Gold is the safest place to be with currencies losing value. Dollar has decline 50% last 4 years and Gold has increased 50%+ in the last year.
     
    pack leader, pmaitra and nrj like this.
  18. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Joined:
    Feb 19, 2009
    Messages:
    4,434
    Likes Received:
    1,719
    Location:
    Land of the GODS - "Dev Bhomi".
    LF, isnt there a bubble in gold already? though yes its the currency that is losing value that the gold is appreciating but still.
     
  19. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

    Joined:
    May 25, 2009
    Messages:
    10,233
    Likes Received:
    3,896
    Location:
    Holy Hell
    Savings may seem a bit of a problem but NRIs like to get their hands dirty in both the stock market as well as Real Estate(primarily). This is where a lot of their money goes. The amount that goes into savings will profit banks in the long run. This also allows companies to raise funds using this massive amount, obviously at higher interests.
     
  20. SATISH

    SATISH DFI Technocrat Stars and Ambassadors

    Joined:
    Mar 7, 2009
    Messages:
    2,006
    Likes Received:
    228
    Gold is an investment giving India the much needed economic boost....gold prices has also increased in the world market and it stays as solid investment in every Indian's pocket.
     
  21. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

    Joined:
    May 25, 2009
    Messages:
    10,233
    Likes Received:
    3,896
    Location:
    Holy Hell
    Gold is a bubble as of today. Silver is a bigger bubble. Heck bought a couple of kilos of silver some time back. It rose to 73000/Kg and dropped to 53000/Kg. Heck, I lost track of the market in the same week as it fell. Stupid Luck and a bit of moron on the side. My mom had to tell me the value of Silver fell. Now it's back to 65000/Kg. Will be selling half the booty within the month and wait for it to fall again. :D

    Nothing to worry about though. Gold is a secure long term investment, it will not fail as easily as other ventures. Silver is more volatile, but if you know what you are doing it will be fine. The demand for silver is increasing by the day. But there are always dark days looming.
     

Share This Page