While Americans grapple with credit card debt relief and an impending student loan bubble, India’s rising class of service-based entrepreneurs are fighting a government that seems bent on preventing them from stabilizing their personal finances. In a nation where the inflated currency is helping to perpetuate almost institutionalized levels of generational poverty, the government is throwing up every road block it can to stem the purchase of imported gold and silver.
Until Recent Months India Led the World in Gold Purchases
India is the second largest nation in the world, and was the global leader in gold purchases until the first quarter of 2012 when high domestic prices drove the demand down. Outpaced by the Chinese, the Indian gold market dropped 29 percent, with just 207.6 metric tons entering the country for the quarter. This slide continued into May, with imports hovering between 40 to 50 metric tons compared to 102 metric tons in May 2011.
The rupee is so weak on the global market that a 10 percent increase in the price of gold in the U.S. translates to a more than 30 percent hike in India. Additionally, the Indian government doubled the tax on imports of gold and silver from 2 to 4 percent at the start of the year, further discouraging investment in what is popularly perceived as the safe haven of choice by the financially savvy.
In the United States, financial pundits encourage the acquisition of precious metals to balance and to ground an investment portfolio. There is no tax on buying gold and silver, but if the metals are then sold for a profit, a capital gains tax is applied. Since most investors buy gold and silver to hold for the long term, this is not a major deterrent to purchases.
Indian Government Works to Protect Weakened Rupee
The government in India, however, has a completely different situation with which to contend. Officials are essentially attempting to halt the hemorrhage of the national currency beyond India’s borders, a trend that further weakens the already limp rupee. Currently $1 USD is worth Rs 55.6680. This anti-precious metals strategy, however, is counterproductive to broader attempts to correct endemic poverty in the nation.
The per capita gross domestic product in India is just $3,703 compared to $5,184 in China and $48,147 in the United States. When India gained its independence in 1947, it sought to create a hard-money standard, but was stopped from doing so by the Western powers. Consequently, the nation has struggled with all the ills associated with inflated paper money in the years since, and continues to do so.
The Indian Government is Out of Touch with Its People
A government policy on precious metals so at odds with the needs of a population striving to elevate itself from poverty has made the act of buying gold almost an individual statement of independence for Indians. There is a deep distrust in Indian culture of the government, which apparently fails to see the growth potential inherent in a society that has skipped the manufacturing stage of its development and moved straight into a profitable service industries model.
Without financial diversification however, Indian investors will remain at an international disadvantage so long as they are dependent on the rupee as their central currency. While the government may be successful in partially stabilizing the national monetary supply with its precious metals stance, it is also hampering the growth of its youngest, most vital entrepreneurs who are poised to take India’s economy to a more profitable and dynamic level.