Budget 2015: Why Jaitley Should Introduce Gold Certificates
Indians have for centuries relied on gold for savings. The yellow metal remains the investment of choice for many. The large amounts of savings locked up in gold curtail liquidity and therefore investment in infrastructure and other drivers of the economy.
The lust for gold makes India the biggest importer of gold. Large imports of the precious metal lead to widening of trade deficit and rupee volatility.
It is for these reasons that economists want Finance Minister Arun Jaitley to come up with a solution to disincentivise people from buying physical gold.
Ajit Ranade, chief economist of Aditya Birla Group, says the government in the Budget should try to find means to increase financial savings by introducing 'gold papers'. (Watch Video)
"There is a room for introduction of a gold paper instrument, which is not backed by physical gold, in a form similar to Kisan Vikas Patra," he said.
Gold paper or certificate are instruments that investors can use to buy gold without taking physical delivery; on maturity, investors can get a pre-decided quantity of gold or cash.
The scheme could appeal to investors; it would also help in reducing gold imports as institutions managing the scheme need to import gold only when investors want to take possession of gold.
Current schemes like gold gold ETFs (exchange-traded funds) and gold mutual funds buy physical gold on investors' behalf and store it with a custodian. The mutual funds declare the net asset value of these schemes which mostly track the current value of gold. When investors redeem gold ETFs and gold mutual funds units, they get paid in rupees.
Mr Ranade said the government could save as much as $10 billion (Rs 60,000 crore at 60 rupee per US dollar) if it brings such as policy.
"Our savings rate is around 30 per cent but financial savings is declining year after year. The country spends an estimated $50 billion to $60 billion every year to buy gold. It sends its precious money abroad," Mr Ranade said.