In­dia Could Be Sit­ting on a Gold Mine

To limit gold im­port, In­dia needs to mine it on its own

The Economic Times - - Commodities Plus -

Gold is so pop­u­lar in In­dia that it’s cre­ated an eco­nomic prob­lem for PM Naren­dra Modi.

The coun­try vies with China as the world’s big­gest buyer of gold. Im­ports of the me­tal came to $35 bil­lion last year, and were equiv­a­lent to about 43% of the coun­try’s cur­rent ac­count deficit in the Septem­ber quar­ter. In Novem­ber, Modi launched a pro­gramme to lure pri­vate gold holdings to the mar­ket by get­ting banks to of­fer in­ter­est on items de­posited in their vaults.

If he re­ally wants to limit the amount of gold im­ported, here’s a smarter way of do­ing it: Make it eas­ier to pro­duce the stuff do­mes­ti­cally.

At the start of the 20th cen­tury, In­dia was the world’s sixth-big­gest gold pro­ducer. Since then, pro­duc­tion has slipped dra­mat­i­cally. You’d think the gov­ern­ment would be do­ing ev­ery­thing it could to en­cour­age lo­cal min­ers. Far from it: Dec­can Gold Mines, which hasn’t dug up an ounce in13 years be­cause of the dif­fi­culty of ob­tain­ing per­mits from state govern­ments, told that it has no in­cen­tive to ex­plore for gold af­ter laws passed last year forced min­ers to bid for the right to mine the de­posits they find. Find­ing min­eral de­posits is risky, cost-in­ten­sive busi­ness. As with pharmaceuticals or movies, there are a long tail of failed in­vest­ments be­hind ev­ery block­buster.

In­dia has long-stand­ing prob­lems with cor­rup­tion around the free al­lo­ca­tion of min­ing leases, which helps ex­plain the de­sire to change the law.

The prob­lem at the moment is that with­out ro­bust pri­vate-sec­tor ex­plo­ration, it’s hard to be sure what the prob­lem is: A paucity of re­sources on the ground, or a lack of cap­i­tal to de­velop them. Only 13% of the coun­try’s land with ge­o­log­i­cal po­ten­tial has been ex­plored. It could be sit­ting on a gold mine, and not even know it. — Bloomberg

David Fick­ling


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