May 2, 2014

Akshaya Tritiya – Gold and the Indian Economy

Today is the auspicious day of ‘Akshaya Tritiya’, an important holy day, for Hindus and Jains. This day is considered to be the harbinger of luck and success and acts of charity today are believed to usher in blessings. The word ‘Akshaya’, in Sanskrit, means ‘never diminishing’. Sadly, due to the failures of the Congress-led UPA government, the term can no longer be used for the Indian economy.

Over the last few years, as the Indian economy under the Congress’ much touted economists received a battering, confidence in the India story diminished and equity markets floundered, Indians resorted to purchasing gold for security instead of investing in assets that bode well for the nation in the long run. Investments in real estate and gold are widely believed to be “unproductive”, since they do not catalyse a multiplier effect on the rest of the economy. The people started investing in gold as a “safe investment”, since their faith in the government eroded and this myopic view led to crowding out of much-needed capital for infrastructure and growth oriented investments.

This resulted in gold imports reaching stratospheric levels triggering a Current Account Deficit (CAD) crisis and the rupee deteriorated to lifetime lows of 68 against the US Dollar. The average Indian who is already saddled with back-breaking inflation and extremely low per-capita income, is compelled to helplessly channel his meagre savings into gold assets, further exacerbating the situation. In response, the Congress unleashed a series of ham-handed moves to artificially control gold imports, which only led to large-scale smuggling, since the appetite for gold could not be curbed due to lack of stable policy and a credibility-deficit of this government! This is a classic example of how this inept Congress government’s flawed strategies repeatedly make things bad to worse.

The way out is three pronged – First, restore faith in the Indian economy by initiating a set of investor-friendly moves (unequivocal message on taxation policy & tax-terrorism, ending inter-ministerial turf-wars and policy paralysis). Second, articulate priorities of how government’s resources would be used and skew it towards capital investments which ensure rapid & large-scale job creation, infrastructure build-out and resolution of our supply-side bottlenecks. Third, design policies that incentivize funnelling of domestic savings & investments into areas which are currently capital-starved (e.g., physical infrastructure, housing, manufacturing, tourism, SMEs/start-ups etc.), but are likely to yield transformative results across the spectrum, if capital is made available.

This Akshaya Tritiya, it is evident that only a Narendra Modi led government at the centre can resolutely push through these changes efficaciously, and restore the sheen and lustre to the Indian economy. Finally, acche din aane waale hain!

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