ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Banks-Dissecting Priority Sector Credit

Gold IN May 1978, the government commenced auctioning gold from out of its nonmonetary stocks, estimated at 86 tonnes at the end of 1977, ostensibly to keep the domestic price of gold under control. It took only 14 auctions spread over six months for the government to shift ground and claim that the objective of the auctions was not to hold down the price of gold or stabilise it but to garner revenue. Since the domestic price of gold continued to zoom despite auctioned supplies amounting to about thirteen tonnes, the government was finally forced to suspend the auctions. The fact that this volume of gold, valued around Rs 90 crores, helped to bleach number two (black) money of about a half to a third of the estimate of number one money value of the auctioned gold was of course glossed over. (Between the first and the fourteenth auction, the domestic price had risen from Rs 695 to Rs 850 per ten grammes! In a virtually free market, it could be claimed that purchases made at the time of an earlier auction were sold later; and, naturally, bleaching involved payment of number two in excess of the ruling price in number one money.) Those were the days when there was little hesitation in conceding that generation of number two money was necessary for growth, so much so that the belief got round that tax administrators had been told to pull their punches. At any rate, little attention was paid in October 1978 to the fact that the government had not abandoned gold auctions but only suspended them. It' was assumed at that time that the government only wanted to save face by resorting to 'suspension' of auctions and by a appointing review committee on the subject, including import of gold for sale in the domestic market. Now it seems that that assumption was simplistic. Options had' been retained for exercise at the opportune time. The opportune time is apparently now. The international price of gold is rising rapidly. The prevailing price is in the $ 255-60 range (against $ 175-180 a year ago) and the reckoning of the price trend is extremely bullish (S 270 in a matter of weeks) in view of expectations of rapid inflation stemming from the hike in oil prices. Restoration of auctions would be therefore propitious for bleaching. (Incidentally, since the abandonment of gold auctions the domestic price of gold has risen by about 15 per cent; the international price rose during the period by 10 per cent.) Clearly, pressures have been built up

Dear reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top