Reverse the trend

Apropos the editorial, “Gold rush, again” (July 13), the propensity of households for investing in the yellow metal is increasing rapidly and leading to the channelling of savings into unproductive investment. This would otherwise be essential to augment investment for economic growth and social development. Despite the presence of a developed financial market and the availability of a number of financial products, the savings habit of households is skewed towards investing in gold. 

Hardly any of the savings in this particular segment is flowing to capital markets due to low risk appetite and inadequate financial literacy. Investments for various productive activities in the realty sector are sluggish because of persisting uncertainties. Financial products of banks and other financial institutions, though comparatively safer, are now not attractive enough due to diminishing returns and people preference for converting their financial assets into gold.

Illiteracy about new tax reforms and fear of higher taxation are prompting savers to block their money in the form of gold. This trend needs to be reversed to enable the flow of these savings for augmenting investment. Revisiting the income tax structure and prices of various financial products is essential in this respect. Increasing volume of gold imports is negatively affecting the current account deficit and is detrimental to the growth of the economy.

V S K Pillai   Visakhapatnam

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