Last Updated : 01 April 2013 at 14:15 IST
Pledging of family's priced possessions of coveted jewels—however small or insignificant it may turn out to be--is a taboo in India. But selling of the same does not have an equal impact on the pride and family credentials as that is often deemed as an act of strength rather then weakness. What you sell, you can buy later on, goes the thought.
Does this age old principle need to be invoked given that India's widening Current Account Deficit is at a record 6.7% of GDP. India's export earnings have been nose diving and import bill soaring like an insane eagle creating the mess.
For the period spanning October to December the deficit stood at $32.6bn compared with $20.16 billion in the same period a year earlier. While India's Balance of payments stand at a surplus $781 million compared to a deficit of $158 million in the previous quarter, time may not have arrived yet to pledge gold as India did in 1991 to the tune of 67 tons.
“The lack of export boost and poor FDI inflows have been the root cause of crisis. While the slowdown in the West aggravates the crisis, it cannot be cited as an excuse.” said Martin Patrick, economist from South India's Kerala State.
For instance India's trade policy is yet to get unveiled as media reports suggest the policy may get delayed as 'simmering differences between the Finance and Commerce Ministries over the “package of incentives”.
There are many economic similarities between India of 1991 and India of 2013; but there are also a number of differences. And differences outnumber similarities distorting the latter in a big way.
“Back then, India lacked a concrete policy. Now we have some policy guidance in place. We have learned leadership toughened by experience.” Martin noted, “and our economic situation is relatively safe compared to 1991.”
India at this juncture can think of selling some gold as the prices are high and buy back the same when it may get cheaper, he suggested. A scenario where India will have to pledge reserves is remote, he added.
India's gold reserves as per the latest World Gold Council stands at 557.7 tons. Until widening CAD is structurally addressed by the government which may include unleashing a slew of reforms and may mean addressing proverbial issues related to bureaucracy, it is a good idea to sell some of gold.
Is the government ready?
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