India's insatiable appetite for the yellow metal

Indra P NarangNo day passes without a story in the media about the customs in Mumbai and some other international airport in the country catching travellers trying to smuggle gold into the country. These passengers hide their gold in all kinds of cavities — natural or man-made — be it in their luggage, apparel or even their body at grave personal risk.

The media is also full of stories about various law enforcing agencies conducting raids on the premises of tax evading businessmen and corrupt bureaucrats. In all such raids one item that is always found along with papers of benami properties and bundles of currency notes is again gold — some as ornaments but the rest mostly in the form of biscuits or even bricks. The hunger for gold in this country seems insatiable. Once upon a time there was a politician who used to adorn himself with gold ornaments weighing a few kilograms.

We have been running a huge current account deficit (the difference between what we import and what we export) and in the recent years this deficit has been widening and becoming unsustainable. There are two commodities — oil and gold — that are largely responsible for our external trade deficit. Oil, of course, we cannot do without, since it's needed for running the engines of our economy.

But gold is a different matter altogether, as most of it finds its way in the vaults of the banks or as jewellery. In no way it contributes to the growth of our economy or welfare of our society.It is only recently that China has supplanted India as the world's biggest consumer of gold.

Historically, we have always been a great consumer of gold. In the olden days when banking services were non-existent or were unreliable and the currency used to fluctuate wildly, gold provided the means of holding on to a large amount of wealth and security.

But in those times, our country had certain products that were sought after the world over. All the great historians agree that from the birth of Christ until about 1600 AD, India accounted for almost one third of the entire world's economic output. Indian products such as cotton textiles, spices, pearls were in demand in the civilized world and we dominated the world trade. In such a scenario, we could afford to absorb a major chunk of the word's gold production without harming our economy. But with industrialization in Europe, the balance of trade shifted from Asia to Europe and from a great trading and exporting nation, we became a fringe player in international trade.

But this fall as an economic power did not lead to a reduction in our hunger for gold. That has resulted into an out-flow of precious foreign currency for the last several decades, thus weakening our economy.

Recently, in order to reduce gold import, the central government decided to levy a 10 per cent import duty. But rather than reducing consumption, this has only led to smuggling. Moreover, by taking this step, we have also created problems for our neighbouring countries such as Sri Lanka, Nepal, and Bangladesh who too are complaining about gold being smuggled into their country, en route India.If we want our economy to become strong and the rupee to shine, we need to learn a lesson from the fable about King Midas and his fascination for the yellow metal.The author is a teacher and corporate trainer