GOLD IMPORTS A SOCIAL EVIL N.

. Sasidhar The global production of gold in the year 2004 is 2600 metric tons per year. The major gold producing countries are South Africa, Australia, USA, China, Russia, Peru, Canada and Indonesia, which account for two thirds of global gold production. Major gold consuming counties are India, USA, China, Saudi Arabia, Gulf States, Egypt, Turkey and Pakistan, which account for 80% of world gold demand. Mainly Asian countries fuel gold demand. Though USA and China consume good amount of gold, they also produce substantial quantity indigenously without straining their Exchequer. India contributes less than 2 tons per year to the global production. Indians have been importing nearly 850 metric tons per year with foreign exchange out go next to petroleum products only. The gold imports have touched of the order of rupees 70,000 crores per year (). This value exceeds two to three times the yearly cost of defense equipment imported by India. Gold import cost is nearly one third of countries trade deficit. In addition to these official imports, substantial quantity of gold finds its way to India from USA, Saudi Arabia, Gulf countries, Far East, etc when NRIs visit India. ( Hardly 15% of world production is consumed in industry mainly in electronics and dentistry. Rest of the gold is used in the form of ornaments and movable asset. The traditional belief among Asians and particularly stronger among Indians is that Gold is the only asset which can protect their wealth in times of crisis such as civil wars and political turmoils. Also Indian women have cultivated strong liking / habit of wearing gold ornaments for ages. The global gold assets are estimated to the extent of 135,000 tons. Out of this quantity Indians citizens own nearly 35,000 tons alone. This amounts to per capita availability of 33 grams per head, which is nearly 50% in excess of global per capita availability. This is a dubious distinction for a poor country like India, which is to develop its human assets as well as its infrastructure many folds. Out of 35,000 tons of gold held by Indian public, it is estimated that nearly 25,000 tons is in bank vaults and lockers. This gold is either pledged for taking bank loans or kept in bank lockers for safety reasons. Another 35,000 tons is with central banks of various countries. The trend of developed countries is to dispose their gold reserves and earn good income to finance development of their human assets and infrastructure assets. Gold is no more considered benchmark for any currency since the price of a particular product or service is decided by its demand and availability in economically well integrated present world. Whenever gold prices are peaking, European countries are selling gold to fetch good value. These transactions are not made public promptly as it will affect the sale price. If long term prices of gold (50 years period) are taken in to account the average yearly increase in gold price is less than the long-term bank interest rates or inflation of Indian rupee. In other words, the general inflation is riding the prices of gold similar to any other commodity.

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Gold production is also associated with contribution to hazardous pollution. Presently gold is extracted from its ore, which is as lean as one (1) part per million (PPM) concentrations (i.e. one gram of gold in one ton of ore). Some of this ore is mined from deepest mines of the world. The ore is ground and mixed with sodium cyanide or mercury to react with gold in the ore for gold separation. Cyanide is highly poisonous chemical, which can kill living creatures when exposed in minute quantities. Many cyanide spills from gold mines have taken place world wide both in developed and poor countries which killed the marine life in long stretch of effected rivers. Environmentalists consider these pollution disasters as major environmental disasters till date after Chernobyl nuclear power plant disaster. When mercury is used in gold production, minute quantity of mercury compounds enter in to water bodies causing heavy metal contamination of water. Mercury enters in to food chain in the form of methyl mercury through fish, etc. Mercury contamination in humans causes incurable severe retardation of brain functions. Thirty tons of used ore is dumped as waste for producing one finger ring of gold. This ore dump is the source of many heavy metals such as cadmium, lead, zinc, copper, arsenic, selenium and mercury. Water is unsuitable for human consumption if these heavy metals are found in more than one PPM level. When sulphide bearing minerals in these ore dumps are exposed to air and water, the sulphide transforms in to sulphuric acid which in turn dissolves the heavy metals facilitating their passage in to surface water and ground water. This process is called Acid Mine Drainage (AMD). The ore dumps of gold contain substantial quantity of heavy metals, which are prone to AMD pollution. The gold ore dumps are considered as long term man made hazardous waste next only to nuclear waste dumps. Billions of dollars need to be spent to mitigate the heavy metals pollution from world wide gold ore dumps. Gold extraction is also highly energy intensive industry (25 kwh of electricity per one gram of gold production) to extract ore from deep mines and to grind the large quantity of ore for further chemical extraction. In present day world, underground mining is least preferred employment by workmen as the occupational environment is not suitable for humans. Thus rich Indians are fueling unknowingly gold production, which is associated with damage to world environment, ecology and forcing workers to unhygienic conditions. Earlier Indian government tried to curb the gold imports by imposing high customs duty. This was mainly done to reduce the foreign currency demand to keep Indian rupee relatively stable. However, these restrictions gave rise to rampant smuggling of gold and severe law & order problems. Of late government relaxed all the pecuniary restrictions on importing gold. Indian foreign currency reserves have been increasing at good pace and Indian rupee is stable for last five years. Gold imports by Indian public have not reduced even after the stability of rupee in international markets. This indicates that Indians have insatiable liking for gold. They consider wearing gold ornaments as highest form of status symbol. Continuing with large quantity of gold imports (more than 850 tons per year) in future with huge foreign currency out go will not bode well for a country which has to grow faster with full efforts to attain developed nation status. If Indians want to dispose their gold assets at

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future point of time, there would not be any demand and its value will be at a fraction of present value since it does not have much industrial consumption. With the saved foreign currency outgo by stopping gold imports, it would be prudent to create massive modern storage facilities for agriculture commodities and metals which could be stored as buffer stocks to keep the prices stable and bridge the gaps between demand and availability. In a stable financial markets, the inter relations between various services and commodities is easily discernible by masses which will lead to elimination of wastages and fruitless activities. Presently, import duty on gold is very nominal. Importing commodities and high technology equipment in place of gold will fetch substantial revenue to the government in the form of import duties. The lust for gold by Indians shall be treated as a social evil by the government and try to eradicate this social evil by passive campaign educating the masses against gold purchases. The passive campaigns sponsored by government for family planning and against consumption of narcotics, tobacco products, liquor, etc have yielded results over a period of time. The following measures shall be considered to curb the gold demand. 1. Government shall sponsor a campaign against gold use in the form of messages from the popular celebrities in all medium of communications such as TV, cinema, radio, internet, mobile phones, print media, street hoardings, etc urging the people not to purchase gold in the interest of the country. Detailed documentaries and plays are to be shown to the people explaining the economic and environmental evils caused by gold imports. 2. Central governments shall enact laws to ban advertisement of gold ornaments and products in all medium of communications such as street hoardings, TV, radio, internet, print media, etc including inside jewelry shops. 3. Censor board shall not allow in movies, print media, videos, plays, etc indicating pompous display of gold ornaments and its admiration directly or indirectly. 4. Displaying gold ornaments in museums and exhibitions shall not be conducted by government 5. Banks shall not extend loans against gold pledge. At the same time, loan eligibility on pledging agriculture commodities and land shall be enhanced to compensate the reduction in eligibility. 6. Gold shall not be allowed to be kept in bank lockers. All the banks shall install gold / metal detectors in locker rooms to find violations. 7. Insurance companies shall not insure gold products or ornaments. 8. Police shall investigate gold thefts on chargeable basis. Expenses incurred on recovery of stolen gold shall be borne by owner.

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9. A nominal property tax shall be imposed on gold assets to distinguish between legally or illegally acquired gold after fixing reasonable exempted limit. 10. Government shall encourage exclusive gold shopping malls in all major cities with government run gold quality checking centers in these malls. This is to prevent the gold traders from selling inferior quality gold to the customers. When good quality gold is available in India, NRIs returning to India would not prefer to purchase gold abroad. Government can implement the above measures with fair success and nominal expenditure without any detrimental effects. If the above passive legal measures and educative propaganda against gold purchases are implemented by government on long term basis, the unreasonable gold imports will come down substantially. The substantial foreign currency savings could finance import of high tech goods for the development of the country at a faster pace. Lesser demand for gold would also protect the precarious environment and ecology. Economists and lawmakers need to consider seriously mitigating this social evil. Post Script: Indian gold imports touched 2,50,000 crores (50 billion US$) in 2011-12. The all in costs of gold production is 700 US$/ounce from exploration to marketing in the last quarter, 2011 whereas it is trading at 1600 US$ / ounce (nearly 2.3 times). The market price of gold has touched price of platinum whose underground and above ground reserves are far below than gold. In addition much of platinum is consumed as catalyst in low emission automobile engine silencers and industry. Though it is precious and rare, platinum is not commanding premium in the market over its production cost. Some analysts say Platinum prices would fall to 50% of its present market price if electricity run vehicles get preference over Diesel/petrol automobiles. Whenever the Indian rupee is depreciating against international currencies, the gold prices in abroad are falling which indicates Indian demand (gold price in India) is mainly driving gold price abroad. Thus gold imports are the main cause for the depreciation of Indian Rupee. --------------This paper was first written in the year January 2007. References: http://www.scribd.com/doc/82418790/Gold-groduction-and-its-environmental-impact Summit declaration, Peoples Gold summit, San Juan Ridge, California in June 1999 http://www.deseretnews.com/article/810435/Cyanide-spill-compared-to-Chernobyls---Ndisaster.html Cyanide spills from gold mine compared to Chernobyl nuclear disaster http://news.bbc.co.uk/2/hi/europe/642880.stm Death of a river http://www.abc.net.au/am/stories/s98890.htm Cyanide spill second only to Chernobyl

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http://www.latrobefinancialmanagement.com/Research/Commodities/Behind%20Gold's %20Glitter%20NYTimes%20Piece.pdf Behind golds glitter, torn lands and pointed questions, New York Times report

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