The $950bn worth of gold held by Indian households is the equivalent of 50 per cent of the country’s nominal GDP in dollar terms. All those gorgeous necklaces and other extravagances weigh 18,000 tonnes, or 11 per cent of the world’s stock, according to the report.
India imports 92 per cent of its gold, making it the third largest of its merchandise imports behind crude oil and capital goods. Gold made up 9.6 per cent of imports so far for the year ending March 2012 – significantly expanding the current account deficit.
That is an old criticism of the Indian economy, and here is some recent background on the deregulation of gold holdings.
On a different but related front, here is an overview of the ongoing deterioration of the Indian economy, still an underreported news story. Here are some economic lessons from Indian retail, a sector which is underperforming.
The last two links point to the same article. Was that intentional?
Sorry, correct link here:
http://www.businessinsider.com/indian-economic-decline-december-2012
In 1600, India would be kicking ass!
If South Asia starts fighting wars to open up new markets/colonies to get more gold/silver, then mercantilism could be making a comeback. The story could feature prominently in several hundred Bollywood musical extravaganzas, all currently in production.
“Expected to grow 7.5% this year”.
Yes, I see the problem, clearly.
Indian tax authorities are hammering foreign investors with “interpretations” (really “new rules”, but that would mean no retroactive application). Vodafone got crushed at the Indian Supreme court and for its impertinence, received a new, unrelated transfer pricing audit. This is billions, not hundreds of millions.
so all the gold in India is still smaller than the US budget deficit.
An old criticism indeed
Anecdotal evidence in concurrence: I just spent 30 days in India. The place is a mess. I much prefer the African nation in which I currently live and work.
I was there want the FDI decision on retail was announced, when talking with people I was surprised at the almost universal concern that Walmart, Carrefour, Tesco and IKEA were going to put all the millions of little retailers out of business. Not one person expressed happiness at the prospect of access to good products at good prices. Not one person I spoke with saw any advantages to how the increase in competition could benefit the people. They were all concerned with the potential loss to the little retailer. Given what I was reading in the paper at the time, along with my conversations with people, I’m not too surprised to learn from Yglesias piece that the decision has been suspended.
What I saw of the Indian economy, from my admittedly limited viewpoint, was vastly under-utilized capacity. I was struck with all those people scurrying about, but nothing really being done. Strange place.
nothing really being done, yet that gdp keeps a-rising.
when “millions” are put at risk, I think it is okay to get worried about them.
btw in India, there is a much closer connection between households and the little retail stores as compared to the US. Very often someone from the store will go to houses after the house has placed an order. The fear of losing the small guy is therefore quite real. That does not mean it is necessarily justified.
Incidentally, Indian companies have been engaged in retail for awhile now, the little guy has remained, the two work together.
I looked up statistics yesterday. As per Indian journals and articles, the Indian farmer gets 30-50% of the consumer price of fresh tomatoes. In the US, as per the USDA, the farm price is 25% or less of the retail price. The Indian farmer will not be better off with the Walmartization of India.
Hard to tell if this is relevant at all since agriculture is so different in the U.S.
“The Indian farmer will not be better off with the Walmartization of India.” True only if everything else remains the same, which it would not necessarily.
Indian agriculture is extremely inefficient — due to a variety of reasons including the fragmentation of farmland ownership and lack of decent modern irrigation, but also due to poorly developed transport and other infrastructure, and also very large market-distorting subsidies. It’s not hard to imagine that a large private corporation with enormous resources behind it could work with selected farmers to vastly improve productivity, by improving some of those problem areas, even if the government continues to have bad policies.
I bet the farmers would prefer working at the Wal Mart.
1. The proponents of the Walmartization of India point to the “greater share of the consumer dollar that the farmer gets in the West”. So, I decided to look at an example, tomatoes.
2. A Walmart is not going to build roads, irrigation facilities or other infrastructure.
3. Yes, farmers would prefer jobs in Walmart. Agriculture would benefit as people moved off the land, and farm sizes could grow. Unfortunately, the arithmetic is that for India, Walmarts would eliminate jobs. There needs to be employment growth in other sectors that can absorb these people ( unless you want even more people to starve). But that won’t happen until yet other reforms are put in place.
4. A couple of links for further discussion
http://arunsmusings.blogspot.com/2011/12/india-foreign-direct-investment-in.html
http://arunsmusings.blogspot.com/2011/12/s-gurumurthy-on-indian-retail-sector.html
You may want to read this:
http://www.tehelka.com/story_main51.asp?filename=Ne101211Coverstory2.asp
Without growth in employment in other sectors, the retail sector which acts as India’s safety net, has to be reformed carefully.
From your article:
“Predatory pricing is Wal- Mart’s standard operating procedure, against which there is no defence.”
Is there any documented example of Walmart employing predatory pricing? To be predatory wouldn’t they be raising prices after destroying the competing stores? I’ve never noticed that.
Walmart simply offers sustained low prices due to efficiency.
Well, there is the counterexample of how Walmart lost somewhere between 1 and 2.5 billion dollars when facing truly efficient competitors in Germany – Aldi and company make Walmart look like a bloated and incompetently run organization (in the German market, it was).
Walmart likes to believe it is efficient – it is dominant, which is not the same thing, and when it did not have that advantage in its corner, truly efficient competitors had no problem driving it out of the market – with the help of shoppers who actually care deeply about what the price tag says, and not what a store says about it low, low prices – which weren’t, except in Walmart’s marketing copy.
One could also add that the basic Walmart model of large stores one generally has to own a car to reach crippled them too – most Germans are not likely to make a special trip that might take a half hour to buy products that cost, at best, no less than what they can buy by walking or riding a bicycle and then shopping in less total time than a one way trip.
Not everyone values Walmart’s model – something that Walmart discovered when operating in a fierce retail environment which could not be shaped to Walmart’s advantage (this includes the court rulings that said Walmart had no rights concerning how its employees lived their lives – such as having romantic relationships which would then be cause for terminating employment on Walmart’s part).
The king of the irrelevant German homer post strikes again. In fact yours is not a counter example but further evidence that, as Rahul says, Walmart does NOT employ predatory pricing tactics.
Btw to go off topic with you, where is Aldi in the U.S., the largest market in the world? Could there be more to the story than “Germany crushes the U.S. in every facet of life”?
See wiki
That’s a very helpful suggestion. Thank you.
Thank goodness India isn’t in a monetary union. The rupee fell to its historic lowest against the dollar last week. Hopefully exports get a boost.
NGDP growth is far too high – inflation has been in the double digits for couple years now. Yes exports are a positive side of this ledger, but let’s not lose sight of the underlying cause.
Do you mean Indians are printing too many Rupees? I’m not sure what NGDP growth being too high means; how does one measure how high is too high. Is there an objective metric?
Channeling Scott Sumner- there is no such thing as too high NGDP growth.
I thought he would say that anything above the God-ordained 5% was too high?
@Silas
What’s so special about that magic number?
@Rahul: I don’t know, ask Scott Sumner, he’s the one who thinks it’s magic.
Btw, you have a reply waiting for you on my blog.
Say what? I would bet that he wouldn’t say that as by corollary you could keep printing money – pushing NGDP growth higher and higher forever = Zimbabwe. (Yes I tried to avoid the i-word, I’m a Sumner acolyte).
Careful, there, Contemplationist. Your gratuitous references to NGDP growth are commendable, but you could lose your status as a Scott Sumner acolyte with these blasphemous references to an i-word (here, inflation).
Lol Yes I was careful to mention NGDP before the blasphemous i-word
“That is an old criticism of the Indian economy…”
I’m curious what your point is. That India has long had an irrational compulsion to hoard gold? That Keynes’ analysis was wrong? That Dudley Dillard misinterpreted Keynes? That any long-held position is right (or is wrong)?
Curious,how is anything in economics, not mandated by the government, but from arising free exercise of choice, deemed irrational?
You haven’t noticed that sometimes people make incredibly stupid choices?
Stupid doesn’t mean irrational
Yeah, how DARE those f***ing Indian terrorists not put their full faith in the official, government-backed currency. Off to the dungeon with them for treason!
The rupee constantly inflates…and the people don’t really trust the govt. Bank failures can and have happened – locking depositors money up for a time. Gold, on the other hand, is rock-solid.
how exactly does anyone know how big the world gold stock really is? its not like all the wealthy families in the world are going to advertise that they have 1 tonne of gold stored in a vault that they have been passing down for generations. there are papers out there that claim that there is actually 1 million tonnes of gold out there, not 165,000. regardless, i dont see anything wrong with Indians hoarding gold or the Chinese hoarding silver. its their money, who is anyone to tell them what to do with it?
What a moralizing and smug criticism =)
Everytime I drive on the highway a few BMVs & Audis overtake me. Long time ago, I counted 2 or 3 of them and just thought “there it goes an unborn small business, what a waste of resources”. Nowadays , I acknowledge that people can do whatever they desire with their money.
Same thing can be said with houses, some people can be better of starting some business instead of wasting “money that could flow into the economy locked up in homes”.
FT article is kind of SWPL idea.It makes you feel “smart” and that you accomplished “something”. That’s all.
http://blogs.ft.com/beyond-brics/2011/12/05/gold-dulling-indias-economy/#axzz1fa1uxaUF
The FT article was ghastly. I don’t understand the problem with Indian household diversifying away from housing wealth , stock market wealth and INR currency holdings by storing some of their wealth in gold, especially with such high inflation. How would this be any different had they instead invested in gold ETFs? Indian household do liquidate their gold holdings for cash in their time of need and gold frequently serves as a collateral for borrowing.
It is disingenuous to blame the purchase of gold on the weakening rupee or the current account deficit, any more than the purchase of any other currency by Indian companies or any other import for that matter( assuming of course that a weaker rupee and a current account deficit are problems in the first place).
Also, the statement that buying gold and keeping it in a cupboard is somehow keeping money from flowing in the economy is patently and astonishingly absurd. Suppose instead Indian households purchased stocks in the *secondary* market in a company that rarely (never) pays dividends. Would buying such a stock keep the money away from the economy?? There is no real difference between the two situations.
ugh.. what a terrible and intellectually bogus article.
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