All that is gold does not glitter/ Not all who wander are lost/ The old that is strong does not wither/ Deep roots are not reached by the frost.” JRR Tolkien in The Fellowship of the Ring warns against the belief that things are exactly as they seem. The first line is an inversion of the Shakespearean line from The Merchant of Venice, ‘All that glitters is not gold’.
Both, the proposition and its corollary, are apt for the scene on gold hoarding in the country. Neither is everything sparkling beneficial to our economy, nor is the sentiment that everything that is not sparkling, doesn’t enrich us. You’d think otherwise to look at our penchant for the shiny stuff.
The domestic stock of gold is estimated to be 20,000 tonnes in jewellery, bars, and coins, but Finance Minister Arun Jaitley has repeatedly stated the government simply has no clue how much gold is actually held by Indian households. Thankfully, the search and seizure stipulations of 1994 have never actually been implemented. And with the Government clarifying that they will not be, there is no way of knowing. Any data blind spot this large is problematic.
Gold the more so because there is no other unregistered asset class worn on a daily basis. You can’t exactly crack down on people’s necks.
On Thursday, the Government stirred a hornet’s nest by clarifying that it had ‘only’ revised taxation rates from the existing 30 per cent to 60 per cent, plus a surcharge of 25 per cent in addition to cess. The tax discounts inherited assets, and targets the undeclared. How several will prove that inherited stocks weren’t illegally acquired, or that new gold isn’t ancestral, is not clear. It also rests heavily on the discretion of the assessing officer, throwing open a window to corruption.
The problem with gold is there has never been any prior effort to track it. Sentiment is also high around gold, an instrument of transfer of security and liquidity in marriages and inheritances, accessible to the uneducated investor as much as the highly-qualified one.
Gold has faced a tough 2016 so far, and the government has been sending clear messages to move off it through gold stocks, bonds, loans. FICCI had recommended standardisation, a gold board, etc in 2012. With the market in disorder, it is unfair to put the onus of standardisation on the consumer.
Gold is a high instrument of trust. Its prevalence speaks to the lack of faith in the banking system. Hidden in the closets with it, is the nation’s Plan B. While it is imperative to know the true quantum of stocks, it is more imperative to establish systems, both for gold and its replacement, that win the faith of the public.