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(Precious) Words of Wisdom : "Wall Street makes its money on ACTIVITY, you make your money on INACTIVITY." ~ Warren Buffett

Jaitley's plan to save India from gold-obsessed Indians

Are you aware that our obsession for Gold is detrimental to India's economic progress... and ours too?

We currently "consume" about 800-1000 tonnes of gold in a year. Since India does not produce gold, lot of this demand has to be met through imports. As per Handbook of Statistics on Indian Economy, India has "wasted" a whooping Rs.14.60 lakh crores of precious foreign exchange from 2000-01 to 2013-14 in importing gold from abroad.

Why do I call it "waste" of money? Why do I consider buying gold as "consumption" and not "investment"?

Simple, because,
a) Except as a fancy decorative shiny piece, gold is useless
a) Just a lump of metal, it neither grows nor pays any dividend
b) With little industrial use, it serves practically no economic purpose
c) It merely lies locked up in our cupboards and lockers

As Warren Buffett also say "gold will never produce anything, but is purchased in the buyer’s hope that someone else – who also knows that it will be forever unproductive – will pay more for it in the future. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end."

Further, as Indians rarely sell gold, the stock of Gold in India keeps rising year after year. It is estimated that presently more than 20,000 tonnes of gold is lying as a dead investment around millions of homes in India.  

This, at today's prices, works out a mind-boggling sum of more than Rs.50 lakh crores. Who says India is a poor country!!

Since so much of productive capital goes out of the economy every year, naturally India's growth prospects are affected.

And if you think, Gold is a good investment, think again! Average returns from gold over the last 2-3 decades have been a mere 7-8% p.a. [Must Read: Why do Indians Love Gold and is it Safe?]

Finance Minister Shri Arun Jaitley is hoping against hope to bring at least some part of this gold into the economy. Therefore, in his recent Union Budget for 2015-16, he has proposed three schemes connected with gold viz.

Scheme 1: Gold Monetisation Scheme
"Introduce a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold metal Loan Schemes.  The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account.  Banks/other dealers would also be able to monetize this gold."

Scheme 2: Sovereign Gold Bond
"Also develop an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold.  The Bonds will carry a fixed rate of interest, and also be redeemable in cash in terms of the face value of the gold, at the time of redemption by the holder of the Bond."

Scheme 3: Indian Gold Coin
"Commence work on developing an Indian Gold Coin, which will carry the Ashok Chakra on its face.  Such an Indian Gold Coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country."

I guess you heard what Modi the Financial Advisor has to say about our obsession for gold.

India could become an economic superpower... instantly... even if a small part of this dead gold can enter the productive economy. 

Time to lend your support (and gold) for India's... and your's... bright financial future.

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