THE HINDU Editorial Vocabulary-May 17, 2017- Topic 2

Gold shines

On reducing India's demand for gold

Prime Minister Narendra Modi’s long-drawn-out effort to tackle the desire for gold does not seem to be bearing fruit. India’s gold imports witnessed a huge jump in April, increasing threefold to $3.85 billion from $1.23 billion in April 2016. In March, the jump driven by jewellery demand was even higher as gold imports stood at $4.17 billion, compared to $974 million a year earlier. 

This suggests that Indian demand for gold is robust and that policymakers will have to continue worrying about its impact on the country’s trade deficit for a long time to come. The trade deficit in April was $13.2 billion, the highest since November 2014, compared to $4.8 billion in the year-earlier period. The 20% increase in exports to $25 billion was overcome by a 49% increase in imports, which stood at $38 billion. The jump in gold demand is particularly significant given the many steps taken to reduce it in recent years. For instance, the demonetisation of high-value currency notes last November coincided with India’s gold demand dropping to a seven-year low of 675 tonnes during 2016, according to the World Gold Council. Earlier, as part of his efforts to push Indians to decrease their gold purchases, Mr. Modi had introduced the gold monetisation scheme that aimed to reduce gold imports by using deposits to increase domestic supply. But, as of early 2017, the amount of gold that had been deposited under the scheme was less than 1% of overall gold demand in 2016.

It is no secret that Indians tend to favour gold over other income-generating financial assets. This has, for a long time, led to concerns about savings being wasted on a dormant metal instead of being invested in productive business activities. While such concerns may be valid, policymakers would do well by first tackling the issues that have explained the average Indian’s preference for gold. The metal’s predominant utility as a hedge against inflation, which protects the average investor lacking sophisticated financial acumen from a depreciating rupee, cannot be ignored. Ironically, the Centre’s sudden demonetisation decision has possibly undermined confidence in the rupee as a store of value, adding to the yellow metal’s attractiveness. Capital conservation is an important reason for investment in gold by Indian households. Gold’s lure cannot be explained only as a reserve for illicit wealth or tax evasion. Access to better and more formal financial market instruments remains a pipe dream for the majority in a country where talk of financial inclusion remains at the level of opening a basic bank account. Any significant strides on this front will require structural reform of the financial sector that encourages more competition to spur financial innovation and access. Until such time, gold is likely to remain a favourite asset, with gold imports adversely impacting India’s external trade balance.

Vocabulary

Tackle: make determined efforts to deal with a problem or difficult task.

Example: Police have launched an initiative to tackle rising crime

Synonyms: come to grips with, address, get to work on, set one's hand to

Robust: strong and healthy; vigorous.

Example: The Caplans are a robust, healthy lot

Synonyms: strong, vigorous, sturdy, tough, powerful, solid, muscular

Overcome: succeed in dealing with a problem or difficulty.

Example: She worked hard to overcome her paralyzing shyness

Synonyms: get the better of, prevail over, control, get/bring under control

Coincided: occur at or during the same time.

Example: Publication is timed to coincide with a major exhibition

Synonyms: occur simultaneously, , be concurrent, concur, coexist

Tend: regularly or frequently behave in a particular way or have a certain characteristic.

Example: Written language tends to be formal

Synonyms: be inclined, be apt, be disposed, be prone, be liable, have a tendency

Dormant: having normal physical functions suspended or slowed down for a period of time; in or as if in a deep sleep.

Example: Dormant butterflies

Predominant: present as the strongest or main element.

Example: Its predominant color was white

Synonyms: main, chief, principal, most important, primary, prime, central

Hedge: surround or bound with a hedge.

Example: A garden hedged with yews

Synonyms: surround, enclose, encircle, ring, border, edge, bound

Illicit: forbidden by law, rules, or custom.

Example: Illicit drugs

Synonyms: illegal, unlawful, illegitimate, criminal, felonious, outlawed, banned

Evasion: the action of evading something.

Example: Their adroit evasion of almost all questions

Synonyms: avoidance, elusion, circumvention, dodging, sidestepping