Y V Reddy, the seasoned banker and the 21st governor of the Reserve Bank of India between 2003 and 2008, feels there is lot more to gold than in its colour and its attributes of providing safety, security and under difficult circumstances, even liquidity. "We have to recognize that gold is an industry. It has as huge retail market. Millions of citizens are involved in transactions in gold. It has employment potential." And that is not all. "The manner in which the industry develops will have an impact on the future of the financial sector" since "gold has some characteristics of money" and is a "substitute for financial asset." Therefore, he feels it is time, "The government places a white paper incorporating a positive comprehensive policy on gold."
Reddy said this as part of his talk at the Hyderabad Literary Festival on Sunday, January 29th, where he was invited to share some of his "interesting experiences".
Reddy, who has authored several books and who was also been the chairman of the Fourteenth Finance Commission of India, in his long years with the Indian central bank, has had to often deal with gold albeit "in an official capacity", as he likes to add. For instance, he has seen the country's transition from being a borrower to a lender and subsequently even a buyer of gold. "It is matter of personal satisfaction for me that I was dealing with gold to raise resources in 1991 and to obtain funds from the International Monetary Fund (IMF) and by 2002, when I joined as the ED on the IMF board, India, "got the clearance (from the IMF) to be a lender." Subsequently (after 2008-09), he says, "we build enough reserves to enable my successor to purchase gold from the IMF," the very institution, to which India had to earlier not only pledge gold but also physically transport it as per its conditions for financial assistance in 1991.
Looking back, Reddy does see some of the measures taken by the government in the recent years as significant while apparently a lot more needs to be done. "In the budget of 2015, the government has taken initiative for three schemes. One of them, on Gold coins is a bold step in recognition of gold as an industry. Recent initiatives on consumer protection through strengthening role of Bureau of India Standards are noteworthy. These measures are better than the previous ones which were muddled. However, they are still ad hoc and disjointed. The white, black and yellow dimensions of gold supply and demand are still getting mixed up."
Reddy has for long maintained the need to have a "positive comprehensive policy" on gold. In fact, even back in December 2015, while delivering the 12th Dr Amitabh Chowdhury Annual Memorial lecture in Guwahati, on the topic of 'gold policy in India', Dr Reddy had said, "it may appear inappropriate to discourage import of gold that meets needs of women, while import of luxury cars and men's shaving lotions are permitted freely…..public policy in regard to gold should be fair to all, and not imply a bias against tradition or a bias against gender." He then, called for a policy that "should address the three different sources of demand for gold in a differentiated manner. First, in regard to the demand arising out of cultural factors, property rights and general preferences, these will get resolved over the longer term depending on the socio-economic developments. Second, the development of financial sector to provide reliable alternatives to gold as a form of saving for individual investors must be considered over the medium-term. Third, the demand for gold arising out of black money transactions requires immediate and serious attention in view of its nefarious influence on economic system and social fabric."
Reddy, while concluding his talk at the literary festival in Hyderabad, said, "In November 2016, in the context of demonetization, gold came back into news. The demand for gold from black money sources and the demand for gold for jewellery purpose could not be adequately distinguished during the process. This is the legacy of a negative attitude to gold industry which dominated our country for decades. That policy resulted in smuggling and generation of black money" and therefore there are good reasons why, he sees a case for a "positive comprehensive policy on gold."