Is the demand for gold insatiable?

This refers to your edit ‘Golden tangle (Business Standard dated 8/6/13)...The Govt is solely responsible for the mad craze for gold in India and now the demand is price inelastic. The reasons can be found in Govt's wrong policies and inaction in respect of vital economic policies badly needed by the economy. Failure of the Govt to contain inflation, corruption and black money is the major cause for diverting attention of the people to gold. Greed has overtaken the market and pricing of products has no relationship to demand and supply. Gold only can be the safest hedge in the present state of the economy is more than proved. Corruption is beyond anybody’s imagination and it is rampant even in villages and small suburbs and irrespective of one’s status and educational background among people  many of whom make hell of money in black and a large segment of it is diverted towards gold consumption. Added to this Govt's policies to import gold to satisfy the gold bullion and jewellery merchants and sell gold through post offices and banks have made Gold a most possessive item at any cost by those who have surplus. Further, the scams and frauds  now and then getting reported in the financial system, the steep fall of stock market, absence of financial instruments with safety features and positive returns covering inflation for public to save have attracted people to invest in Gold. Along with the solution offered through your editorial, the Govt should identify the blocks and people from where the demand is insatiable to curb the demand.As long as Corruption and black money persist in the economy the demand for gold cannot be contained so easily.

Dr.T.V.Gopalakrishnan

Govt and Gold

The Govt is solely responsible for the mad craze for gold in India.The reasons can be found in Govt's wrong policies and inaction in respect of vital economic policies badly needed by the economy. Failure of the Govt to contain inflation and black money is the major cause for diverting attention of the people to gold.Added to this Govt's policies to import gold to satisfy the gold bullion and jewellery merchants and sell gold through post offices and banks have made Gold a most possessive item at any cost by those who have surplus. Further, the scams and frauds  now and then getting reported in the financial system, the steep fall of stock market, absence of financial instruments with safety features and positive returns covering inflation for public to save have attracted people to invest in Gold.The Govt is to be squarely blamed for the mess that it created in gold market.

Dr.T.V.Gopalakrishnan

( This comment is in response to the article poke me: Govt is responsible for India's craze for gold that appeared in ET dated 5/6/13)

RBI and CAG audit

The argument to bring RBI under the fold of CAG audit does not sound logical and is uncalled for unless the intention is to take away even the remaining independence of RBI. RBI does not raise resources from any source as its incomes are basically by way of interest from Govt on the securities.The incomes of RBI are from assets owned on behalf of the Govt and from the Forex reserves maintained and invested. Unlike other Statutory Regulatory agencies RBI has no way of raising resources from the institutions or public except the CRR from banks which are essential as a monetary tool to influence money supply and discipline banks.The RBI earns interest on lending to Govt and banks which are transparent and as per well laid down procedures and practices. RBI has never been a commercial organisation and it is not driven by profit considerations. Its functions also do not envisage to frame policies to make money for itself and by its staff in any manner. The only area perhaps there is scope  at all for audit by CAG is on expenditure side which is kept to the barest minimum because of Conservativeness the RBI has been pursuing since its inception.Here also, RBI has well laid down system and procedures and they are all transparent.RBI runs its show with minimum staff and efforts are continuously on to reduce the staff further Expenditure is seen as an allergy and staff have been well trained to be so economical that even genuine needs are often overlooked..Even the pay and perks of staff are not comparable and very favourable when compared with many Central banks of the world and large Corporates in India. The pension payable is not even on par with  the Central govt employees and many are drawing a pittance making it difficult to make both ends meet. Less said the better about the conditions of pensioners because of miserly attitude of RBI towards pensioners.In these circumstances, it is surprising to observe that on what basis the idea of bringing RBI under CAG audit has emerged.RBI is perhaps the only institution which is self disciplined, self audited and having all possible checks and balances on expenditures.Corruption is unknown to RBItes is a well acknowledged truth.

 Dr.T.V.Gopalakrishnan

 (This comment  in a modified form appeared in response to the article Who would audit RBI? in ET dated 6/6/13)

RBI and Import of gold

What the law enforcing authorities are doing?One cannot and should not be afraid of initiating some public policies intended for the common good of the people, economy and the country just because some anti social elements and black money holders will  ignore violate and indulge in smuggling and nullify the effect of such policies. No right thinking persons can encourage such thoughts.RBI is right and a very straight forward institution and its thinking is always  on the right lines as far as public good and economy's interests are concerned.  (This comment is in response to an  article Restriction on import of gold will  increase smuggling appeared in ET dated 6/6/13)

Approach to Financial Inclusion Worth emulating in India

  It is interesting to read that"Union Bank in San Francisco has created a new bank account designed for the underbanked.The bank on Tuesday introduced the Union Bank Access Account. The account, designed for customers with limited means who may not qualify for a traditional account, will be available in California, Oregon and Washington.' This is a very thoughtful move and it can work wonders to bring under banking fold the less privileged and people of small means. It meets two objectives simultaneously ie to inculcate banking habit among the people and mobilise savings though in a small way which can be creatively deployed. The initiative taken by the Union Bank in California is worth emulating by developing and underdeveloped countries where they are struggling to make Financial Inclusion a reality. Congratulations to this food for thought move initiated by the Bank.

Posted by gopalakrishnan.tv | Wednesday, June 05 2013 at 11:09PM ET

(This comment appeared  slightly in a modified form in American Banker on June 5,2013 in response to an article  Union Bank in California Debuts Under banked Account.)

India and China Trade Deficit

Well written article. But In India as on today's economic conditions, there is nothing concrete to export except perhaps diffidence in ease of doing business because of corruption and lack of Governance Standard. The economy is losing its edge over engineering, agricultural and IT because of lack of economic reforms and political stability. The country's ability to perform well has taken a back seat and and It is not clear as of now when the engine of growth will be put back on the track. Our talents and initiatives are being wasted in fighting scam, corruption and terrorism and the need to produce more in industrial and agricultural sector has been ignored or forgotten. It is a sad story and hope we will learn some good lessons from China.
Dr.T.V.Gopalakrishnan
( This comment in response to SA Iyer's article in TOI dated 2/6/13 on Trade Deficit with China Excellent )

Banks Liquidity and Govt Deposits With RBI

Liquidity in banking system basically arises out of deposits, recycling of funds refunded by the borrowers and borrowings from the market which include REPO loans taken under LAF. The author is very right in saying that LAF has become more or less a refinance facility as banks depend on these funds to meet  not only their liquidity shortage but also to run their business. The problem of liquidity shortage in banks is caused due to the shift in the form of business in banks. Deposit mobilization which was an essence of banking has been taking a back seat and the rate of growth of deposits has been on the decline particularly when the interest portion is adjusted from the growth. Fresh deposits mobilization and that too in the form of retail deposits has been adversely affected thanks to persisting inflation, preference for gold and other alternative modes of savins, wrong understanding of KYC norms, customer service devoid of personal touch.etc The ever increasing menace of NPAs and restructuring of loans have  been affecting the recycling of funds,  The  increasing trend in term loans as compared to cash credit, bill limits and overdrafts hitherto followed by banks has also affected the liquidity of banks to a great extent.  The author’s suggestion to auction the Govt deposits lying with the RBI can have a favourable impact on liquidity, but it will be only a temporary phenomenon. The banks have to change their present business model  from borrowings  and lendings to mobilizing  funds as deposits  and lending. NPA accumulation needs to be drastically brought down and the concept of restructuing of loans should be reduced to the bearest minimum by having an exit option of bad loans.  

Dr.T.V.Gopalakrishnan

(This comment is in response to an article in Business Standard on RBI should define liquidity by  A Seshan on 1/6/13)