Gold has a very significant influence in the forex reserves and the value of the Indian Rupee in forex markets. Most of the gold that are sold in the market is imported from global sources., and forms a major component of our import basket. Only a small quantity is recycled gold from old jewellery and other sources. So the enormous appetite for gold has to be satisfied with imported gold draining our forex reserves. This puts a strain on the Rupee value as the money needed for critical imports are diverted to less productive imports of gold. When the demand for forex exceeds supply , naturally the Rupee value depreciates.
The major demand for gold is more as an investment, means of hoarding wealth, etc ., which has given rise to such enormous appetite for gold vis-a-vis other investment options.
How to solve this :
Govt of India can come up with a GOLD BOND Scheme . The Scheme to be managed by RBI and issued by various nationalised banks. Bonds at unit value of the gold on the date of purchase. Redemption at the unit value of gold on the date of redemption with a small rate of return. The returns being tax free. Intent is to divert the purchase of physical gold and move towards these bonds.
1. Money stays within the country.
2. The demand for forex drops to the extent of total value of bonds issued.
3. The Indian Rupee value appreciates.
Cascading Effect:
1. Lower cost of oil imports.
2. Drop in petrol, diesel prices.
3. Lower inflation.
4. Stability of our economy and more..
Dhakshina Moorthy, K M
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