the lure of gold for consumers and investors — but at great cost to the country.
In 1933, the then US president, Franklin Roosevelt, issued an order asking citizens to return gold held by them in a bid to tide over a crisis. Offenders were handed out a fine of $10,000 or 10 years in jail. The rest is history. The US fed became the largest holder of gold in the world. But Indian leaders may not be able to do a Roosevelt. Disturbed by the skewed rise in the prominence of gold, regulators have been trying to shift the allocation of domestic savings from gold to financial products. Measures like the Gold Control Act, the gold deposit scheme, gold exchange traded funds, the trading of gold derivatives on exchanges, tax sops for insurance and mutual funds and the gold import duty have not slowed down India’s huge appetite for the yellow metal. On the contrary, it’s increasing.
There could be a way out. A scheme with suitable features can slow down gold imports and ensure that domestic savings are available for investments. The government should consider setting up a Gold Corporation of India (GCI) to market the national gold plus scheme (NGPS), a scheme that should offer returns equivalent to those accrued from actually holding gold. It should provide redemption in physical gold, if required by investors, through tie-ups with banks and jewellers. The scheme would use financial derivatives to give Indians gold returns but save hard-earned dollars for investment within the country. The catch is that the NGPS should match physical gold in terms of pre-tax returns and outperform it in terms of post-tax returns, liquidity, safety, convenience, principal protection and quality assurance. It should be sold through direct as well as alternate channels — through banks, post offices, government offices, jewellers, financial distributors and brokers with appropriate incentives. Special incentives on income tax, wealth tax and gift tax should be given to make the NGPS lucrative.
The operational nitty-gritty is not difficult. The GCI will have to pay gold-linked returns to investors and buy “at the money” (a situation