What about government's 'uncontrolled passion' for inflation?


Contain Uncontrolled Passion for Gold: Chidambaram to Countrymen

From Press Trust of India
via The Indian Express, Mumbai
Saturday, May 25, 2013


Finance Minister P Chidambaram today asked countrymen to contain their "uncontrolled passion" for gold and instead save in financial instruments.

"Have faith in our financial sector. Unfortunately, we have difficulty shedding our old habits and put our money in gold," he said while speaking at an event to mark the platinum anniversary celebrations of state-run Dena Bank.

"The uncontrolled passion for gold must be contained," Chidambaram said, reeling out data to show how increasing gold imports are hurting the Current Account Deficit (CAD). People should rather switch to financial products to funnel their savings, the minister said, adding that the soon-to-be-launched inflation indexed bonds are a very lucrative option.

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He also sought to demolish gold as a hedge against inflation, saying many such investors are finding the going difficult ever since the price of gold plummeted to Rs 26,000 from over Rs 33,000 per 10 grams last year.

He said that last year the country bought USD 50 billion worth gold and fortunately it was able to finance the CAD of USD 90 billion on the back of higher foreign flows and could maintain the foreign exchange reserves level at around USD 290 billion. However, if the flows were to stop completely, it would have a negative impact on the forex reserves, the minister warned.

Explaining the difficulties of financing a high CAD, which hit a record high of 6.7 per cent in the Decemeber quarter of last fiscal, as against the fiscal deficit, another problematic point, he said, the government can borrow from its people for the latter but has to depend on external flows for the former.

The CAD, which is the excess of foreign exchange spent than earned, is likely to be over 5 per cent last fiscal. Chidambaram reiterated the government's commitment to rein in fiscal deficit at the targeted level of under 5.2 per cent last fiscal and 4.8 per cent this fiscal.

Speaking to reporters on the sidelines, Financial Services Secretary Rajiv Takru said it will take at least seven to 10 days more before any action is taken by the Reserve Bank against errant banks in the money-laundering probe initiated following a series of sting operations by the newsportal Cobrapost.

He said the problem is not so much with the "greed" of banks but lack of "inadequate attention to existing rules and regulations" which would be tightened. On bank recapitalization, Takru said a majority of the Rs 14,000 crore earmarked for recpaitalisation of public sector banks this fiscal will be provided in the fourth quarter while the request of a few of those which need capital early will also be considered.

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