ASSOCHAM organised its 10th International Gold Summit on September 22, 2017. Dr. C. Rangarajan, Former Chairman, Economic Advisory Council to the Prime Minister of India & Former Governor, RBI was invited to share his thoughts on the gold market in India
"Demand for gold depends on multiple factors such as income, taste and custom, return on gold, inflation and return on financial products. While efforts must be made to reduce the basic attraction of gold to the people in India, at least, in the short run, we can start acting to reduce the demand for gold as an asset. Taming inflation and enhancing the real rate of return on financial products are fundamental pre-requisites for containing gold demand in India", said Dr. Rangarajan.
Dr. Rangarajan further said, "to contain import of gold through quantitative restrictions will not work. It can also only lead to smuggling with all the associated evils.
Tastes do not change easily. We must understand the fact that gold is an attractive form of asset for Indians. Gold jewellery has become part of the cultural ethos. It however also serves as an asset which can come to the help of the people in times of need and distress. Gold monetization schemes, if pursued vigourously can lead to a better utilisation of existing stock of gold. For this, the procedures need to be simplified. Under these schemes, gold which would have otherwise remained idle also earns a return".
Perhaps, temples and other institutions which have a large quantity of gold are the appropriate clients for this kind of schemes. The attempt to mobilise privately held gold stocks and transfer them into the hands of financial institutions could at least meet to some extent the demand for gold jewellery. We could avoid the use of gold as a hedge against inflation if we can offer suitable financial substitutes. In order to succeed in containing the demand for gold, we must act on ensuring that the financial products give an adequate return. Financial products in this context should cover a wide range from banking deposits to mutual fund products.
On the second quarter GDP growth, Dr. Rangarajan said, "some of the reasons for slowdown are temporary or transient factors like introduction of G5T or perhaps even demonetisation. Therefore, I believe that if you look at it, the fourth quarter and the first quarter have been more or less same-5.6% and 5.7%. But even to get 6.5% for the year as a whole, the economy needs to grow at 7% in the next three quarters. So my own estimate is that for the year as a whole, probably the rate of growth will be 6.5%."
On recapitalisation bond, Dr. Rangarajan said 'banking system needs tobe recapitalised'. In early 1990s, we gave money to banks but they were asked to invest it in bonds. It is important for banks to be recapitalised so that they can provide additional credit.
The government is planning to come out with some kind of stimulus, he said, the fall in the growth rate is also accompanied
by fall in investment rate and more critically, it is private investment rate that is falling. In fact, the public investment rate, or public expenditure on capital, has shown some slight rise, said former RBI governor. Therefore, the most important thing to address is the problem that may be preventing private investment from rising. Therefore, the package in my opinion should be partly to raise capital expenditure of the government but suited in a way that is stimulus private expenditure as well.
Dr. C. Rangarajan also pointed out that there have been a number of stalled projects. And the low hanging fruit is to ensure these stalled projects are activated, such as those stalled projects viable must be immediately made operational.
Commenting about CST, Dr. C. Rangarajan said that CST is a good measure. It is major step in-indirect tax reform in the country. Though initially there would be problems in its implementation but the economy would benefit once it smoothens out.
Mr. Manoj Kumar Dwivedi, J oint Secretary, Ministry of Commerce and Industry said, "we are looking forward to transforming Indian gold market. The government should make efforts to make gold industry more transparent and enhance value addition based exports to generate employment.
Mr. Somasundaram P.R., Managing Director, India, World Cold Council informed that India has been importing 900 tonnes of gold a year. India has stock of 24,000 tonnes of gold valued at $1 trillion. "If we include gold available with banks, value goes up to $1 trillion. Industry has gone through fast-paced changes and we carmot set the clock back. We have to sit with the government to seewhat gold can do for India."
GST is a good measure. It is major step in indirect tax reform in the country. Though initially there would be problems in its implementation but the economy would benefit once it smoothens out.
Dr. C. Rangarajan, Former Chairman, Economic Advisory Council to the Prime Minister of India & Former Governor, RBI addressing the audience.
Mr. S. K. Jindal, Chairman, ASSOCHAM National Council on Commodity Market welcoming Dr. C. Rangarajan, Former Chairman, Economic Advisory Council to the Prime Minister of India & Former Governor, RBI.