Despite finance minister Pranab Mukherjee announcing the doubling of import duty on gold in Union Budget 2012-13, the importance of the yellow metal remains undiminished. In an interaction with FE’ s Sandip Das, National Spot Exchange (NSEL) MD & amp CEO Anjani Sinha bats for investing in gold.

What are your views on the import duty hike on gold?

There is an inherent demand for gold in India and nothing can change this fact. So, irrespective of duties and the quantum of tax on gold, Indians would continue to buy it. In any case, buying gold is not a wasteful expenditure, rather it is preservation of wealth. It is a fact that import of both crude oil and gold impact our current account deficit. But, while import of crude oil is an expenditure, that of gold is not. Hence, both should not be compared in the same breath.

Why should an investor go for gold?

In India, gold is not a luxury rather, it is an instrument of financial inclusion. When we look at investment in gold in India, we should not keep in mind only the rich, cash-flush urban population rather, we should look at 6 lakh villages that are an integral part of the country. In these villages, people have only two instruments for investment: land and gold/ silver. The stock market is still not an option for this population. You do not even have bank branches in these villages.

Farmers buy gold or silver after harvesting, if they have surplus funds. During the next season, when they need funds for agri-inputs, seed, fertiliser, etc., they sell these precious metals. Hence, gold functions as an instrument for financial inclusion and for channelising savings and investment, just like a banking instrument.

How do you justify investment in gold as it does not earn automatically?

Currently, just 1.5 crore Indian investors have some kind of exposure to the stock market. On the other hand, gold is held by at least 25 crore Indians. Gold does not generate dividend or bonus, but it assures wealth preservation.

What is the scenario in China regarding investment in gold?

Recently, China surpassed India in terms of consumption of gold. In fact, China has got domestic production of gold, but they are importing over and above the domestic production. The Chinese government is promoting investment in gold by its citizens through various means.

Do you think an increase in import duty will lower gold imports?

No. Since gold prices fluctuates more than 2-3 % every week, an increase in import duty from 2% to 4% will not deter people from investing in it. However, the impact would be in terms of the official import channel being replaced by unofficial channels. In other words, smuggling of gold would go up. On a given date, gold prices in India would be 7% higher than that in, say, Dubai.

This is because of the import duty, VAT, octroi and excise duty. This will induce people into bringing gold through unofficial channels. So, the focus should be on finding innovative ways of decreasing our dependence on gold imports and increasing the economic utility of our gold assets.

Source: Financial Express