Economy
Talking to Finance Ministry to launch inflation-indexed bonds: RBI

The move may also help balance trade imbalances as gold import has been jacking up trade deficit which in turn increases current account deficit

Mumbai: The Reserve Bank of India (RBI) is in talks with the Finance Ministry for launching inflation-indexed bonds, which can help reduce physical demand for gold, its Deputy Governor HR Khan said, reports PTI.

 

The move can also help balance trade imbalances as gold import has been jacking up trade deficit which in turn increases current account deficit.

 

"We are talking to the Finance Ministry to launch inflation-linked bonds, which can help reduce the demand for physical gold," Khan told the FICCI-organised Asian Financial Cooperation Conference.

 

The move can also help arrest imported inflation in the light of the steep fall in the rupee. Typically, according to experts, a 10% fall in the rupee leads to a 100 basis points or 1 percentage point spike in inflation.

 

The rupee has lost nearly 7% this fiscal after losing nearly 18 percent in the last calendar year.

 

It can be noted that last year the country imported 969 tonne gold, which contributed to record current account deficit of 4.2%.

 

This year, however, there is some taming in gold import demand and according to the World Gold Council, this is likely to slide to 800 tonnes, thus losing the years of gold-demand dominance to China by a whisker this year.

 

Both the RBI and the government have been taking steps to reduce gold demand through a series of measures.

 

As gold imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2% in the year, the Reserve Bank has unveiled a slew of curbs on gold purchase and financing.

 

This spike in gold demand was in spite of the record price rally that metal witnessed last fiscal. .

 

In April, the RBI brought down the loan to value or LTV that gold loan companies could offer to just 60% of the market value, from a high of 85-90%. In the 30th October credit policy, the RBI banned banks from offering loans to gold loan companies and NBFCs for buying gold.

 

The government on its part had increased the import duty on gold in the Budget.

 

RBI had also advised banks to not extend loans for purchase of gold.

 

Addressing the annual banking conference in Pune last Saturday, another deputy governor Subir Gokarn had said there was an urgent need to "dematerialise" gold like any other financial product, which could help reduce physical imports of the precious metal that is in turn leading to the current macroeconomic stress.

 

"High gold import is creating some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing," Gokarn had said.

 

Gokarn had also said an RBI working group head by KUB Rao would shortly submit a report on the ways to deal with the problem arising from high gold imports on the macroeconomic front in the form of balance of payments.

 

Gokarn had said while global gold output has stayed stable at around 4,000 tonne per year, domestic consumption has doubled to 1,000 tonne annually since 1999, despite a massive rally in the prices.

 

Last fiscal there was a 39% rise in gold imports and in gross terms, constituting 80% of the CAD of 4.2% of GDP. Net gold import constituted 1.8-2.4% of GDP.

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COMMENTS

Vinay

5 years ago

Gold import is a symptom. Bad governance is the disease.

They need to treat the disease, not the symptom.

Economic slowdown has not bottomed out yet, says Nomura

Revenues of companies have slowed down on the back of lower volumes. Persistent pressure on nominal sales growth suggests that economic slowdown has not bottomed out yet, according to a recent report by Nomura
 

India’s economic growth is likely be around 5.5% in the quarter ended in September 2012, said finance minister P Chidambaram on Saturday. This would be the slowest growth for the financial year since 2002-03 and a below 6% growth rate for the third quarter in a row. Revenues have taken a hit. According to the latest India strategy report from Nomura Equity Research, the downward slide in topline growth, began in the middle of last year and has continued this quarter. The growth rate of net sales has halved over this period. Overall inflation has remained elevated and persistent pressure on nominal sales growth suggests that real economic growth has not bottomed out yet.
 

Sequentially, this was the weakest September quarter in the post-crisis period in terms of quarter-on-quarter (Q-o-Q) sales growth. Even the year-on-year (Y-o-Y) sales growth had bottomed in June 2009 and post-March 2011, the trend has been downwards. Operating margins also remained under pressure, but according to Nomura, this is not altogether surprising given that the quest to maintain/gain market share in a slowing growth environment is keeping costs elevated.
 

Among the sectors that registered the highest Y-o-Y sales growth was the pharmaceuticals with a 27% sales growth, closely followed by IT services with a 26% sales growth. Operating profit growth Y-o-Y was 34% and 31% respectively. Electrical equipment, metals & mining and real estate sector registered the lowest sales growth and negative operating profit.
 

For the 112 stocks in the Nomura coverage, net sales, ex-oil & gas PSUs and banks, were up 14% Y-o-Y; EBITDA was up 10% Y-o-Y; net profit was up 22% Y-o-Y. EBITDA margin was down 60 bps (basis points) Y-o-Y. Banks’ profits were up 27% Y-o-Y. The net earnings revisions remained negative during the earnings season, although the extent of downward revisions was less than in the preceding quarter.

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RBI's Gokarn for dematerialisation to arrest rising gold demand

While global gold output has stayed stable at around 4,000 tonne per year, the domestic consumption of the yellow metal has doubled to 1,000 tonne annually since 1999, despite a massive rally in the prices, which is compounding the troubles for the central bank

 
Pune: Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said there is a need to 'dematerialise' gold like any other financial product to reduce its physical imports, the rise of which has been blamed for the high current account deficit that is feared to touch new record high this year, reports PTI.
 
"It (high gold imports) is creating some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing," Gokarn told the last day of the two-day annual Bancon.
 
The current account deficit or CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising oil and gold imports.
 
Reeling out the high gold import data, Gokarn said a working group headed by KUB Rao of RBI will shortly be coming out with its report on the ways to deal with the problem arising from high gold imports on macroeconomic front in the form of balance of payments.
 
He said while global gold output has stayed stable at around 4,000 tonne per year, the domestic consumption of the yellow metal has doubled to 1,000 tonne annually since 1999, despite a massive rally in the prices.
 
"More expensive gold is being imported in larger quantities which is compounding the troubles," he said.
 
As gold imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2% in the year, the Reserve Bank has unveiled a slew of curbs on gold purchase and financing.
 
Last fiscal, there was a 39% rise in gold imports and in gross terms, it constituted for 80% of the current account deficit, which reached an all-time high of 4.2%, Gokarn said, adding the net gold imports constitute for 1.8-2.4% of GDP.
 
This spike in gold demand was in spite of the record price rally that the metal witnessed last fiscal.
 
It can be noted that in April the RBI brought down the loan to value or LTV that gold loan companies like Muthoot Finance or Manappuram Finance could offer just 60% of the market value, from a high of 85-90%.
 
In the 30th October credit policy, the RBI also banned banks from funding gold buying by gold loan companies and NBFCs.
 

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COMMENTS

Veeresh Malik

5 years ago

With all due respects to the gent suggesting demat on gold, the experiences people have with other demat saving products like equity, non-bank savings like EPFO or Mutual funds, or similar, is so miserable that placing hard solid gold on demat is like seeing the buffalo gone into the lake, to use a turn of phrase.

In troubled times like this, it is back to pure hard physical gold, or fixed deposits with banks. Even real estate is no longer the safe bet it was, clear title being a myth soo very often.

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