Solution of current problem by Jamal Mecklai Tirupati Trust Foundation has well over 1,000 tonnes of gold. The number I was actually told was 1,700 tonnes, which is about 5% of all the gold held in India (between 30,000 and 35,000 tonnes). To get really excited, multiply that total amount of gold by $ 48.5 million (the value of a tonne of gold at $ 1,350 an ounce) which comes to between $ 1.5 and 1.7 trillion – that’s right, trillion. These, by the way, are assets – it is money we Indians own. And, given that they are foreign currency assets, it is hard to understand why we have an FX problem. The FM and the Governor should offer the Tirupati trustees annual earnings of, say, 3,000 cr [2% interest on 500 tonnes of gold] PLUS savings of the cost of storage of the gold, which, itself could be a significant amount. And, of course, that the gold would be safe with, say, State Bank of India and that it can be retrieved at one day’s notice. It’s hard to see how any trustee could turn this down. On the market side, SBI could hold part of the gold hoard – even as much as 40% – to support any sudden withdrawal, although the beauty of starting with religious trusts is that they don’t really need to ever withdraw the gold. The balance – 60%, or 300 tonnes – can be sold in the domestic market, with the price risk on the sold gold hedged off-shore (at a cost of around 1% a year). SBI would get about 85,000 cr [300 tonnes at $ 48.5 million a tonne] of rupees at a modest cost of 2 to 3%, which it could deploy in lending or, till demand picks up, in government securities. And, critically, gold import demand would collapse, taking the CAD down with it. The plan should be announced as soon as it is finalized – and I see no reason why that should takemore than a few days. RBI and the government should then expand the plan to other religious trusts and, ultimately, to individual gold holders. In parallel, they can unwind some of the egregious constraints they have put on the market. Immediately, upon announcement, the global gold price will fall sharply and the rupee will strengthen to better than 60 to the dollar. Come, let us pray!
Posted on: Sat, 24 Aug 2013 07:12:43 +0000