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Commentary

Now Mecklai Pushes For Temple Gold Sales

I had written in June 2013 that India should sell all the excess gold in temples. (Excess, because some gold is on the idols). This resulted in people getting quite angry and beating me up (metaphorically) and all that.

Perhaps James Mecklai might change their mind. He writes today that the only way out for the government to cut the current account deficit is an idea that goes like this:

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.

I’m just a small cog somewhere, but I hope more people like Mecklai come out with similar views. Maybe something will happen.

I’ll go one step further – we don’t need to hedge this gold demand. If we sell the gold, and prices come down or the dollar comes down, or both, we can easily buy back the gold or hedge it at a much lower rate.

I am not religious, so I don’t hold this gold sacred. Flooding the local market with local gold will destroy imports, and also the international gold market which plays on the huge demand from India. But that’s how markets are supposed to behave – temples have needlessly held up inventory.

The chances of this actually happening are: zero. Politics trumps everything in this country.

  • Indian says:

    with due respect how about Christian missionaries/wakf boards selling their hoarded hundreds of acres of land 🙂 . You go to any city you will see Christian mssionaries holding acres of land in prime areas & even wakf boards wakf boards too. This will free hundreds of acres of land, provide huge space in center of city & reduce (or crash) real estate prices thereby.
    P.s: I like you articles & learnt a lot from them, so please don’t write a post or share something like “Let’s sell wakf land”. The next minute there may be bounty on your head 🙂

    • Thanks mate! I agree, but you can’t sell empty land and then return it back 😉 This is gold and can be returned in the form taken.
      But yes, gold with Wakf or with christian missionaries should also be absorbed.
      However it may be simpler to tax them.

      • lohit says:

        BTW, do you know if the RBI is dragging its feet on allowing REITs in India ? That would be so much better than people holding empty, non-income bearing plots of land. And the average joe can get RE exposure without having to shell out a huge chunk of his net worth for a small plot.

  • lohit says:

    Would you trust the govt with your gold ? The gold deposit scheme in the late 90s went nowhere.
    Besides, our govt has a precedent of trying to trample property rights.
    http://www.thehindu.com/opinion/op-ed/the-case-that-saved-indian-democracy/article4647800.ece

  • sudhir says:

    I am sure sir what you said is right . your point of view is very noble and i do completely agree with you. but i would like to stress the point that once this gold is transformed into liquid entity then it will sloely and surely disappear and you know who s coffer it will fill . its been there bz its in gold form as you said an example of hero honda in tc pune recently

  • vetri says:

    Lets be clear-gold owned by a temple trust is private property & entitled to the same protection as we would want our private property to enjoy.
    A gold bond on fair market terms could be offered to all citizens-but cannot be coercive. On fair terms many people would offer their gold-not just temple trusts.
    Finally any such transaction involves price risk for the gold borrower -in this case the govt. Its easy to say-because of a view-that there is no risk. If the govt had done such a transaction in 1999 with gold at 300 we would have called them stupid for executing a risky transaction. The risk you want the govt to assume is no different from a company that borrows in USD but has revenue that is not USD linked.

    • True – a broad scheme can be created. About the risk – there is hedgability today, and if their sales bring prices down, the potential increases (to be able to hedge)
      Also no need to coerce – the government is a decision maker in many such temples. Apart from that, I belive we should tax all religious organizations on income beyond say 1 crore or such.

  • D Rama says:

    Ganesh mandals in Mumbai auction all non-cash receipts after visarjan. Nothing wrong with that, right? So also, temple trusts can lend/deposit/sell/auction all their receipts freely as their committee decides. What must be opposed tooth and nail is any government intervention ordering temple trusts to do so. That would be tantamount to violating property rights.
    At the heart of the whole matter is a simple question: What does Government consider as money? Is gold money or not? If it is, then declare it clearly and without ambiguity to all and everyone in the country. Allow savings in gold, allow payments in gold, allow borrowing/lending in gold and everything else associated with money.
    On the other hand, if Gold is not money, then government has absolutely no business even thinking of using Gold to do anything economic (it might as well consider using coal, land, bitumen, right?). Mecklai is an idiot, maybe he’s long Gold or short Gold in the international markets and has a separate agenda. It is hard to imagine him making these statements with the interest of Indians at heart.

  • Shiv Kumar says:

    This scheme needs to be sold properly to trustees of religious institutions. Most of them are politicians and local lords with vested interests and they would not say no to the prospects of laying their hands on so much money. Rs 3000 cr from Tirupati alone means a lot of politicians will be salivating. Just imagine NT Ramarao during his reign as CM appointed himself vice-chairman of the Tirupati trust reporting only to Lord Venkateshwara who was named chairman.
    In Maharashtra everyone ones what kind of rackets the trustees of Shirdi and Siddhivinayak trusts run. They will also not say no to this scheme. Those without a fixed temple property like the Lalbaugchya Raja trustees auction the offerings every year.
    So there is nothing profane about auctioning gold.

  • Leo says:

    Why cant they raise rates .Reward the savers. say 15% rates. how is real estate empty plots an investment .It is nothing but frontrunning
    and btw is gold responsible for CAD .what about oil which goes up in smoke ?

  • Srinivas says:

    Good idea. BJP loves it.
    If UPA goes through with this proposal(if at all), BJP loves it as then it will be assured of 400+ seats.

  • Shankar says:

    As long as we don’t fix the spending part, whatever new money is brought is going to be frittered away in several schemes. Remember we already lost so many advantageous positions..
    Did some one say demographic dividend last year?
    Only God knows what other ‘welfare schemes’ are in the pipeline.
    The gold in temples is akin to family silver. Sell that and spend it too!!? I can see us initiating the tenth pay commission straight away..bypassing the intermediate ones. 🙂
    But God forbid if the government accepts its faults and mends its ways. That is the real dogma, that needs to be preserved.

  • Nakul says:

    We could have a product where govt warehouses the gold collected from individuals and sells it back to the market where buyers can buy it from. So its a gold backed bond with no gold back it!! Another NSEL coming up. 🙂
    This thought is as random as calling for nationalization if all infrastructure companies !!

  • Kaka says:

    Is something like Roosevelt’s confiscation possible in India?
    http://en.wikipedia.org/wiki/Executive_Order_6102
    I don’t think so.
    But, you never know in future, if we find ourselves in a war situation or something.

  • px says:

    Stop gap solution… we know that the problem is more fundamental …
    ie debasing of peoples long term savings thru inflation of money supply and destruction of value of rupee by govt … Real inflation is above 15% … Friedman said that excessive debt and monetary inflation are the real wealth destroyers… No wonder rush to physical assets like gold !
    Problem i see with this is will the govt then act responsibly ?
    1. The govt can force SBI to lend to other KINGFISHERS of the world ..I remember uti idbi ifci leant to essars of the world and i got back 7 rupees in my UTI MIP !!
    2. The govt instead of curbing spending n deficits is dangerously increasing welfare drug as a vote bank tool … damaging economy and increasing npas !
    3. Gold reserves of politicians and bureaucrats lying in benami houses and vaults loosing value … remember the sales tax officer at mumbai and his lockers of gold and cash !