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Budget 2021 | Unshackle the gold held by India’s households

Wednesday, January 06, 2021
Money Control 

 
With the Finance Minister set to present the Budget in a few weeks, it is important for the government to announce measures that will unshackle the large capital held with households in the form of gold
 
With the worst of the pandemic-induced slowdown behind us, the economy is now poised to enter a new phase of growth. Whether it realises its true potential will depend substantially on the policy measures that follow from now on.
 
One of the immediate consequences of the lockdowns was the drying up of credit flow in the economy as banks and NBFCs became risk averse all at once. It is worth recalling that but for gold loans dispensed by NBFCs, practically every other source of credit went into a freeze for an extended period.
 
With the Finance Minister set to present the Budget in a few weeks’ time, it is important for the government to announce measures that will unshackle the large capital held with households in the form of gold.
 
India is home to the largest hoard of privately held gold worth about $1.5 trillion at current prices. This enormous wealth mostly lies idle while India goes capital hungry. Policy makers have for long tried, but failed, to monetise even a minuscule part of this hoard. Recent gold monetisation efforts have mostly tried to curb the fresh inflow of money into physical gold, as with the sovereign gold bonds.
 
However, the need of the hour is to look at monetisation of physical gold lying with rural and semi-urban households where the greater part of the stock lies. The only low-cost and palatable option (i.e. without melting) to increase the monetisation of this gold is to encourage credit against the security of household gold, i.e. loans against gold jewellery or gold loans.
 
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