A change in approach to gold management can rewrite the India Growth Story to the country’s advantage
A brief media report posted by AFP in Monday’s newspaper gives some interesting features of the Turkish initiatives in gold management. It attracted my attention because a few years back, I broached the idea of gold deposits accounts in banks, an apex institution to manage export and import of gold and related issues. At that time, a top executive in Reserve Bank of India (RBI) queried, “Do we have a business model?” and I glossed over my ignorance by talking more about the possible activities that could be assigned to the apex gold institution.
Though Turkey’s development indicators are much higher in comparison to India (per capita income $14,812 compared to India’s $3,843, Human Development Index Rank: Turkey 90, India 134, Literacy: 94% against India’s 74%, People below poverty line: Only 17% against India’s 30% and so on), there are some common grounds for considering Turkey’s gold management initiative in the Indian context. Such as:
I. Gold is priced heavily in Turkey, not just for ornamentation or investment by banks but as a secure way for private individuals to hold their savings.
II. Many people in Turkey keep gold as security for a ‘rainy day’ rather than products offered by banks.
III. According to estimates, Turks hold some 3,500 tonnes of gold. Turkey has a population of over eight crore against India’s 125 crore. An old estimate from the World Gold Council puts India’s surface gold stock at 24,000 tonnes. Perhaps, if gold concealed in stock with private individuals or organisations are realistically accounted this estimate may get doubled, making the per capita gold holdings of the two countries comparable.
Banking in gold
Kuveyt Turk Bank was the first to open gold accounts to its clients in 2007. The AFP report quotes the marketing manager of the bank sharing his first day experience thus: “We bought one kilo of gold, and the demand on the first day was three kilos. It was a very good decision, so we decided to move ahead.”
In 2015, the bank manages two lakh gold accounts with products allowing sales by cheque, bank transfer or mobile phone. The experiment has been successful with ATMs dispensing gold pieces weighing 1.0 or 1.5 grams and total gold reserves with Turkish banks going up to 250 tonnes now from two tonnes earlier.
Gold management in India needs a makeover.
Once the government musters the political will to recognise gold as a national resource, the whole scenario of India Growth Story will change for the better. The advantages are:
1) When some banks start opening gold accounts, they will also be able to maintain more liquid assets under Section 24 of the Banking Regulation Act, 1949(the section requires banks to maintain a certain percentage of their liabilities in cash, gold or unencumbered approved securities) in gold.
2) Individuals and institutions will be encouraged to keep their gold stock with banks thereby reducing misuse(Now for the rich, gold is a medium to show off their wealth- Not only in the form of jewellery, but by erecting statues and flag masts in solid gold-less said about the malpractices practiced in such transactions, the better!)
3) Need to import gold will get considerably be reduced resulting in saving precious foreign exchange.
Budget 2015-16 is an appropriate medium for Modi government to think loudly on the above lines.
(MG Warrier is former general manager, RBI, Mumbai and author of the 2014 book “Banking, Reforms & Corruption: Development Issues in 21st Century India”.)