Since the US sovereign debt downgrade and the new threats emanating from Eurozone economies, gold has rallied a whopping 14% this month alone, as investors shunned stocks and flocked to the yellow metal as a safe haven
Mumbai: Notwithstanding skyrocketing gold prices, its imports are likely to cross the 1,000-tonne mark this year on robust investment demand, reports PTI.
Since the US sovereign debt downgrade and the new threats emanating from Eurozone economies, gold has rallied a whopping 14% this month alone, as investors shunned stocks and flocked to the yellow metal as a safe haven.
The last time gold rose over 14% in a month was in 1999.
In the domestic market, gold scaled a new high of over Rs28,150 per 10 gm in futures market, while in global markets it hit a record $1,877 an ounce last Friday. In the domestic market, on that day gold rose as much as Rs1,310, the highest ever single day gain, they said.
"With rising prices, investment demand is likely to grow, especially in the gold ETFs (exchange traded funds) and coins, in expectation of better returns," brokerage firm Maya Iron Ores vice-chairman Praveen Kumar told PTI here.
The country's total gold ETFs investment has reached 15 tonne, which is expected to double in a year, Mr Kumar said.
However, jewellery demand is likely to decline due to rise in recycled gold in the market, he said.
India, the largest consumer of the yellow metal, had imported a hefty 958 tonne in 2010, according to the World Gold Council (WGC) data. During the first six months of this year, the import has already crossed 553 tonne, WGC said.
"The jewellery demand may decline as people will try and sell to take advantage of high prices. This will give rise to recycled jewellery which will make jewellers reduce their stocks," Mr Kumar added.
Echoing Mr Kumar, Geojit Comtrade senior analyst Anand James said import is likely to top the 1,000-tonne mark as investment demand is strong.
"Investment demand is likely to remain firm with the price rise," Mr James said, adding, however, on the physical side also demand will remain robust as people will buy expecting a further rise in prices.
Meanwhile, the market is expecting the gold rush to gain further momentum and prices may even scale Rs30,000 before Diwali, as the global economic concerns get confounded by the day.
Earlier this week, WGC had indicated that gold import could cross the 1,000-tonne mark this year.
"The first half performance was very strong and if this trend continues, then we may cross the 1,000-tonne mark this year," WGC managing director (India and Middle East) Ajay Mitra had told reporters here earlier last week.
Economic incentives of agents who run the institution are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. But if corruption is exposed and the disincentives are high, then corruption would cease
Last week, veteran Indian activist Anna Hazare was arrested hours before launching a hunger protest. His cause is corruption. He is demanding that the government pass a stronger law to combat corruption. The government rather disingenuously threw him in prison. Prime minister Manmohan Singh says that Mr Hazare's methods of protest, which includes hunger strike, posed "grave consequences" for Indian democracy.
Still, Mr Singh's remarks and his government's actions are hardly surprising and go to the heart of the problem of corruption. For contrary to its definition, corruption is not a moral issue, it is an economic issue, a law and economic issue.
Laws are provided by the state. Each and every law guides behavior by providing incentives and disincentives. For example a law governing criminal conduct, like stealing, provides the disincentive of incarceration. Some laws provide economic disincentives like fines. Other laws provide economic incentives. An example would be a tax law that provides you with a special tax rate if you take certain actions.
Most legislatures and governments feel that they can solve problems with laws. They can't. There are very real limits to what laws can do. The reason has to do with enforcement. Some laws cannot be enforced. For example, laws relating to certain goods or services like drugs and prostitution are basically impossible to enforce. The reason is that the economic demand for these goods and services are widespread.
Other laws concerning the market are also difficult to enforce. The Chinese feel that they can control inflation with laws relating to price controls, but these always fail. Their attempt to restrict exports of rare earth metals just led to smuggling. Any international investment banker worth their salt can circumvent regulations or utilise regulatory arbitrage to lessen their effect.
The same problem exists with corruption. The problem is that the government is trying to use law to cleanse itself, but that is an enormous conflict of interest. It is really an agency problem.
In game theory, managers, elected officials and even police officers are agents. Managers are the agents of a principal, the owner or shareholders. Elected officials, bureaucrats and security personnel are agents of citizens. The best move for an agent is to cheat the principal. The principal hires a watchdog and the agent's best move is to suborn the watchdog. As long as the institution has the job of policing itself, it will fail. The economic incentives of the agents, who run the institution, are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. So in many ways it does not matter how strong the anti-corruption law is. As prime minister Mr Singh has aptly illustrated, it is not in his best interests to stop what has helped keep his party in power.
This does not mean that citizens are helpless. It does mean that there are limits to what a strong anti-corruption law can do. The solution though might lie elsewhere. The best way to control corruption is to deal with the asymmetries of information and economic incentives. If corruption is exposed and if the disincentives are so high, then the corruption would cease.
Fortunately, we live in a time where each and every owner of a cell phone has access to millions as never before. You don't even need a computer. Your cell phone allows you the ability to network and that power allows all of us to expose corruption. The other part is to provide economic and social disincentives.
One thing that Mr Hazare's campaign has shown is that you can market anti-corruption. But why stop with just hunger strikes or inflammatory editorials? Make it a contest. In the United States and even Afghanistan there are televised contests and prizes for amateur performers. Why not have televised contests for whistle blowers? Whistle blowers, or enforcement personnel, should not only receive some sort of immunity, but celebrity status, cash rewards, honorary medals, titles, sinecures or automatic political office granted not by the government, but by cell phone vote. Cash could be generated by fines from both personal and corporate liability.
Corrupt officials should not be neglected. There should be contests for them as well. The most corrupt official should be the subject of both weekly, monthly and an annual vote for town state and country, perhaps on a specially designated Corruption Day. Annual lists should also include all past year's winners. Shame can be as powerful a disincentive as incarceration.
Stopping and preventing corruption is certainly possible, but to do so we have to recognise the limits of the law. If the institution is corrupt, which it is by definition, so will the law. But that does not mean that society is completely helpless. It just has to know how to advertise.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected].)