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.”

Look at the numbers. India is the largest importer of gold in the world. Its gold demand has risen about 80 percent from 2002 until 2011, according to World Gold Council. Gold constituted 11.5 percent of India’s total imports in 2011-2012 in value terms, growing from 6.9 percent in 2008-2009. That means gold represented $56.2 billion of $489.4 billion in imports in the last year.

Rising gold demand widened the country’s current account deficit, or the amount by which imports exceed exports, to 5.4 percent of its gross domestic product during the quarter ending September 2012. That amounts to $38.3 billion. In fiscal year 2011-12, this deficit stood at 4.2 percent. That has led the government to say that it might raise prices again. If demand falls, that could help shrink the deficit and prop up the value of the rupee, which has been sagging lately.

That’s the government’s thinking, anyway. But such a move might not go far enough to help India’s economic problems. Also, a rising fiscal deficit coupled with slowing growth could push the country into a “twin deficit” situation, which could trigger the fears of currency crisis in 1991, when India had to pledge its gold reserves with International Monetary Fund to finance its mounting debt.

“Gold imports are manifestation and outcome of adverse macro, natural cultural affinity, and delivery of better returns as an asset class. These three factors have pushed gold demand at a humungous trajectory,” said Shubhada Rao, chief economist at Yes Bank. The implication there is that there is little other option than to raise the import duty.

Doing that also could encourage investment in other areas, whose performance might be strengthened by the funds of India’s swelling ranks of the middle class.

“If gold duty is depressing the demand to an extent, simultaneously, India’s growth prospects improve and inflation starts correcting, I will see equity returns start getting better or bonds returns getting better, I as a saver will switch from gold as an asset to equity or bonds,” Rao said.

But if the idea is to narrow the deficit, why not look at other options that could achieve more long-lasting effects than continuing to make gold more expensive? What about oil, which accounts for 30 percent of India’s total imports.

“If the government actually follows on its announcement on increasing diesel prices by 50 paise per litre, I think that will have more far-reaching impact on the overall import demand and thus the trade deficit,” said Anubhuti Sahay, an economist at Standard Chartered PLC.

“I think the policy that (the) government has initiated to raise diesel prices , aligning the domestic crude prices to the global crude prices … will eventually curb the demand. So there will be some rationalization of demand,” said DK Joshi, chief economist at CRISIL Rating Services. “Right now there is no incentive to conserve. So from that perspective consumption of oil will get reduced.”

When it comes to gold, Joshi said, India somehow will have to curb demand. But how do you change the behaviour of a billion people with long-standing traditions? Such a move, it seems, would demand more than government policy could readily provide.

(A man stands in front of a billboard advertising jewellery in Chennai in 2009. Reuters photo: Babu) man stands in front of a billboard advertising jewellery in the southern Indian city of Chennai March 4, 2009. India gold extended losses for a second day on Wednesday due to continued profit-taking, but buyers stayed away hoping for bigger falls in the midst of the wedding season, traders said. REUTERS/Babu

(The opinions expressed here are those of the author and not necessarily of Thomson Reuters)

The perfect recipe of a bad curry is to do everything right, then add one wrong ingredient, or add the right ingredient in the wrong amount. In this case, the ingredient is the mango, or as they call it in Hindi, “aam.”

I attended a candlelight vigil on Sunday night in Bangalore to stand up for women’s rights in India. The vigil was a peaceful version of the protests that have swept the nation after six men were accused of gang-raping and battering a 23-year-old medical student in New Delhi last Sunday.

A group of people arrived at the vigil in Bangalore’s Freedom Park, saying that they were members of the Aam Aadmi party. (“Aam aadmi,” for people who don’t speak Hindi, means “common man,” with the word for mango, “aam,” taking on its other translation: “ordinary” or “common”.) They urged the crowd of about 150 people, mostly students, to decide for themselves whom they want to support in the future. At another protest against the rape, held at Bangalore’s city hall on Sunday, other people who said they were from the Aam Aadmi party did the same thing.

Amid the calls of “We want safety for woman” and “We want stricter legislation”, emerged the sharp voices saying, “We want PM’s resignation”, or “Let the people decide who they want to vote in the next elections.”

There is a simple message that any party in India should heed: protests and vigils supporting women’s rights and speaking out against a culture that looks upon the rape of women and women’s rights as no big deal are not political conventions. People are not attending them to engage in party politics.

Similar reports have come from Delhi. People who have gathered to urge swift action against the accused and stronger laws against rape and assault have seen their efforts taken over by hooligans and political groups to gain leverage for their ends. In Delhi, this has produced scenes of mob violence and the destruction of public property.
Here’s an excerpt from an article in The Hindu:

The protest saw organisations like the Akhil Bharatiya Vidhyarthi Parishad, the student wing of the BJP, and the newly launched political outfit Aam Aadmi Party leader Arvind Kejriwal jumping into the fray, which was strongly questioned by the students who have been leading the protest for the past few days.

“Why are political groups hijacking a students’ movement and hurting the cause? I think it’s a really unfortunate turn in the protest which was peaceful expression of public anger,” said Ritika, a student present at India Gate, while expressing her shock at the fact that groups with ‘vested interests’ who want to “hijack” the movement were resorting to violence.

The Delhi Police in its report to the Union Home Ministry said these interests joined the protesters and were instigating violence.

This is not what people who are protesting against the way women are treated in India want. Why should everything water down to the ineffectiveness of government? I would prefer to withhold commenting on whether it is about the government or not. Now, the problem is figuring out how to effect societal change; it is about how to respect women, regardless of their stature in society, their profession or how they dress.

If anything, the incidents that I witnessed clearly demonstrate the lack of sensitivity and empathy among those who are trying to win power in the country. Voting out the ruling government coalition will not solve the problem unless people in authority see rape as being on the same level of heinousness as murder. This is a lesson that any political parties attending the protests and vigils would do well to learn.

Note: The Akhil Bharatiya Vidhyarthi Parishad, known as the ABVP, has never said that it is the student wing of the BJP, as the excerpt from the article in The Hindu says.

(Demonstrators shout slogans as police use water canon to disperse them during a protest in front of the India Gate in New Delhi, Dec. 23, 2012. The Indian government moved on Sunday to stamp out protests that have swelled in New Delhi since the gang rape of a young woman, banning gatherings of more than five people, but still thousands poured into the heart of the capital to vent their anger. Reuters photo: Adnan Abidi)

Consider this. India’s gross domestic product has grown about 7 percent on an average per year for the past nine years. Its industrial growth has been steadily rising since then. Buoyed by economic growth, the country’s capital markets also offered itself as an attractive and inflation beating investment option.

That means that someone who invested at the end of 2002 in the BSE’s benchmark index, Sensex, would have made a 418 percent return on his portfolio by July 11 (just a random date). It sounds like the Madoff plan, but it’s not. The Sensex’s value on Dec 31, 2002 was 3377.28 which rose manifold to 17489.14 on July 11, 2012. Our market had its fair share of ups and downs, but it remained focused and depicted the country’s growth story.

However, that “someone” who made the 418 percent return most likely was not one of us. The average Indian investor has been satisfied with, and probably still wants, investments with a fixed return that comes from safer havens. According to the National Council of Applied Economic Research, Indians were called “wise savers but poor investors”. The statement found its base in the statistics that its Indian household Investor Survey revealed.

According to the survey, only 10.74 percent of households were investors (up from 7.4 percent in 2001-2002) while 89 percent were either saving in fixed income or are still clinging to their savings accounts. About 46 percent of urban households preferred to save, compared to 21 percent who chose investing.

In 2002, this was not a bad idea. India’s GDP grew at 3.7 percent that year compared with 2001. But in 2003, it jumped to 8.37 percent because of services (mostly financial, real estate and business services) and manufacturing sector which together drove this transition to a higher growth trajectory.

In the same year, the amount of foreign money entering India’s capital markets rose sevenfold. Most of this came from foreign institutional investors, who poured in 304.6 billion rupees ($5.5 billion), compared to 36 billion rupees ($665 million) a year earlier. They bought the Indian growth story; why didn’t we?

The Bombay Stock Exchange’s benchmark 30-share Sensex index started an unprecedented rise on May 6, 2003, climbing almost 67 percent to 5003 points seven months later. That was a better performance than nearly any other investment option out there. What did the Indian individual investor do?

You wouldn’t know because the Securities and Exchange Board of India’s handbook of statistics has no information. And as per the NCAER survey, about 43 percent of investors prefer to invest through mutual funds rather than jumping into the open field all by themselves.

Over the years, mutual funds’ assets under management in equity funds have grown immensely. It stands at $33 billion (assets in equity funds) as compared to measly $5.32 billion in March 2004.

The growth appears impressive. However, only 11 percent of the population is part of this smaller investor community. “Average” Indian investors might want to rethink their historical avoidance of stocks. Inflation (CPI) is 10.16 percent (May 2012) and rising, above the nine-year average of 6.98 percent.

In such a situation, saving will keep them safe … but will it keep them going?