India Insight

India’s central government in January raised the tax on refined gold imports by 50 percent. This increase to 6 percent from 4 percent is the second rise this fiscal year. Why does it keep making gold more expensive, particularly as the nation enters its prime wedding season when brides will be bedecked with the metal from head to toe?

That’s part of the problem — a large part. India’s cultural attachment to gold is something that anybody who has been to an Indian wedding could tell you about. For those of you who haven’t, consider this report from CBS’s “60 Minutes” TV news program:

“India’s love for gold is almost a religion. Beyond being a symbol of wealth and status, gold is part of worship and culture – a tradition that goes back thousands of years. From birth to death, for men and women, among rich and poor – acquiring gold is a goal for the people of India. All of which has made India the world’s largest consumer of gold and thus a powerhouse in industry … Just as part of the American dream is to own a home, the dream in India is to own gold. For Indians, gold jewelry is wearable wealth, financial security that’s also a fashion statement.”

CBS notes that half the gold that Indians buy each year is jewelry bought for a wedding. And as this Voice of America report says, India produces almost no gold, and imports 700 tons a year to feed demand. That’s half of 700 tons, sitting on India’s brides. It’s your savings, not to mention an inflation-proof investment. Here’s an enlightening excerpt from that report:

“A professor at the National Institute of Public Finance and Policy, N. Bhanumurthy, says this massive import bill is contributing to a trade deficit. He says gold also is seen as an unproductive investment. ‘More than half of the current account deficit has been contributed by the imports of gold in the recent period. The savings should be channelized for some investment activity. Gold is neither investment nor financial savings,’ he explained.”

Indian milk and dairy products producer Amul’s campaign has a new subject — the rupee.

The newspaper advertisement features the iconic Amul girl, in her polka dotted red dress, in a boat made of the rupee, about to sink in turbulent waters. She says ‘mujhe mere rupee se bachaao!’ in Hindi. Loosely translated into English, it would mean ‘save me from my rupee.’

The tagline, tongue in cheek, says ‘valued highly’.

The Amul mascot’s angst today reflects that of investors who have so far been bullish on the India growth story.

Slowing growth, a falling rupee, sliding stock markets, a rising current account deficit, drying foreign inflows and policy paralysis at the centre. Things certainly don’t look rosy for India.

With the rupee down 22 percent in the last 10 months and a 6 percent drop in stock markets so far in May (as of Friday’s close), is it time for the government to seriously rethink its strategy ahead of the 2014 general elections?

From Mark Mobius, who said the Indian government has been making many big policy mistakes, to Lakshmi Mittal, who told The Times of India on Friday that decision-making is too slow and India needs to move the way the rest of the world does — there is no dearth of criticism.

The general elections in India, due shortly, may not throw up a clear winner.

This could mean weeks or even months of political uncertainty as parties negotiate for power.

Of the past six prime ministers, only three could complete their term.

In this context, the idea for a fixed term for parliament or the government may be floated again.

Indeed, the Chief Election Commissioner recently suggested a fixed term of five years for the government to cope with the increased frequency of elections, which hinders governance.

“To define is to limit,” wrote T.S. Eliot.

Indeed sometimes, to limit things, they just may have been defined in a particular manner.

This struck home when I saw a communication by the World Bank on poverty estimates.

The World Bank produced an update of poverty numbers for the developing world based on an international price survey conducted in 2005.

Would someone please remind folks that it’s Friday and we all deserve a relaxing weekend? I for one will be doing my usual Saturday morning Yoga. But it’s nasty out there – the contagion has spread, and panic is now the correct adjective.

The overnight Dow crash hit Asia hard – the Sensex is down at least 9 percent and looks like it’s headed for a holiday south of 10,000, the rupee has hit an all time low and in Japan the Nikkei tumbled another 10 percent. Looks like that decision to let Lehman go bust set off the mother of all chain reactions…and Indian markets may be headed back to 2006 levels.

Here’s our resident technical analyst Phil Smith:

…As the chart shows the SENSEX has broken through some very strong and very important support points in the past couple of weeks. These are clearly showed on the chart with the support at 11,900 to 12,500 being broken effortlessly. The next major support levels for this market now stand at around 9,700 as marked and coincides with the old support levels reached back in 2006 when the market staged its dramatic correction then. Currently all the technical indicators are bearish as they have been since the middle of September