Golden fascination

Jul 24 2013, 03:54 IST
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SummaryIt also must be kept in mind that rising inflation has made the purchase of gold more of an investment decision rather than a consumption decision.

Apropos of the interesting column “Is curbing gold imports an effective measure?” (FE, July 22) by the Faculty of Management Studies professor Simrit Kaur and research analyst Simrinder Kaur Bahri, it is indeed correct that the policymakers need to understand that gold demand in the country is largely driven by cultural factors, tax evasion and the need to acquire a safe and liquid instrument. Financial management students too need to study the same. It also must be kept in mind that rising inflation has made the purchase of gold more of an investment decision rather than a consumption decision. Also, despite price rise, there are some limits beyond which the consumption of gold is not likely to be substituted by other forms of consumption. Additionally, Indians tend to accumulate gold over a period of time, thereby giving them considerable scope to vary the rate of purchase as the prices fluctuate. Although the Reserve Bank of India (RBI) has been taking steps to curb gold imports, such as hiking the import duty and imposing regulatory restrictions, it might not be a desirable step in the long run. As the authors rightly point out, alternatives for curtailing the current account deficit (CAD) such as reducing government expenditure exist and using them might be better in the long run.

Smita Sharma

Chandigarh

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