And thus great institutions are born

I was in the interior villages of Tamil Nadu, off Thanjavur yesterday, visiting the offices of KGFS (Kshetriya Gramin Financial Services ), an organization that works for bringing “financial inclusion” to the remotest villages where even the nearest public sector bank-branch may be several kilometers away. What I saw of the work being done by KGFS impressed me tremendously, and I have grown much richer with the experience.

 

But I guess it is better to begin at the beginning.  My friend (and batch-mate from IIMA) Nachiket Mor who heads the IFMR Trust invited me to have a look at the rural financial inclusion initiative of the Trust, to see if I could help in any way given my interest in the subject of Personal Finance.  He referred me to Bindu Ananth, the President of the Trust. When I was on a visit to Chennai the day before yesterday I went across and met Bindu and two of her colleagues at their office in the IIT Research Park at Taramani. I got a brief of the activities from them and then took the train to Thanjavur.  Ganesh, the head of Thanjavur operations accompanied me on the branch visits. A brief view of what I saw and understood follows.

 

IFMR Trust, which works in other areas of finance as well, has a separate arm for Rural Financial Inclusion.  That’s the term that best suits what they do, for they are not a bank, they are not a micro-finance institution, they are not money-lenders in the conventional sense, but they offer several of these products and services to their constituents. Under the umbrella organization of IFMR called KGFS, they have established ‘branches’ in remote villages. The criteria for opening a branch is such that it has to be far away from the nearest town, have at best a population of 5000 to 10,000 in the 5 km radius around the branch (which the branch strictly does not breach in terms of reach), and very likely has as its catchment people who earn only through daily wage labor, or tilling their small land-holdings, or running small businesses.

 

Each branch (and all of them I am told, look the same – I visited two of them) has two or three ‘wealth managers’ who are locals (mostly women) , 12^th standard pass being the minimum qualification, with adequate computer and software support including biometric identifiers for real-time identification of people through their fingerprints, scanners for instantly photocopying documents and storing them, dedicated communication towers (reminded me of National Stock Exchange when they set up) hooked up to their central computers, and an indigenously designed software to enroll participants and keep track of all transactions.

 

The population being served by the two branches I visited (both about 30 km from Thanjavur,  remote rural hamlets, but as always in Tamil Nadu, with excellent road connectivity) is about 5000 people living in five villages.   The services being offered are loans against gold, loans for business needs, loans to Self Help Groups, term life insurance, personal accident insurance, bank savings accounts and recurring deposits.  For the insurance, KGFS has tied up with an insurance company, and the bank accounts are opened with Axis Bank for which KGFS is a correspondent.  Money transfer facilities, only for enrolled customers, is also offered in a tie-up with Western Union. So far so good. But then this is not very different from any financial services organization that you see, except for the remoteness of the location. The real differentiator is in the way these services are offered.

 

A customer cannot just walk in and demand a loan. He or she first needs to enroll. The ‘wealth manager’ at the branch has this software which prompts her to ask and fill in all the relevant questions about the individual’s profile. A typical profile that I saw looked like this. Both husband and wife work as agricultural laborers earning daily wages. The husband get Rs. 200 per day, the wife about 150 per day, and each of them manages to work about six months of the year. That is an annual income of 42,000. They also have a small land holding from which they net about 6,000 per year. Their cow yields them about 5000 annually, and they have a goat as well. They have one school-going daughter. Their assets, apart from their house worth 1.5 lakhs, includes 10 grams of gold, their land holding worth one lakh, their cow and their goat and the clothes on their backs. The software is designed to capture all this, including ‘valuing’ the cow, and valuing their house based on whether it is made of mud or concrete and what kind of roof it has. About Rs. 3.5 lakhs in assets, and 55,000 per annum in income. Expenses per year are about 35,000. Being ‘upper middle class city bred’ I am not used to such low numbers, but I was assured that this is par for the course.  Their goals include getting their daughter married six years from now, and amassing capital of one lakh rupees to start a small business.

 

All this is fed into the software by the wealth manager at the branch, and the software then generates a detailed report. This reports lists out assets, incomes, expenses, along with allocation ratios, projects out their income for the next few decades, and throws out a bunch of other analyses as well.  It also has a concept  of “Human Capital” which assesses the remaining lifetime earning potential of the individual based on which insurance coverage is recommended. The report is discussed among the staff of the branch, and then the customers are educated about their financial profile.   The products on offer are explained to them, and unnecessary consumption loans are discouraged. No product is “sold” merely to make commissions. Needless to say, when it comes to covering life, only term-life policies are even discussed.

 

The service extends to when it is really required, i.e. at the time of a crisis or calamity. In case of death , KGFS extends some money immediately to the family for the funeral, and then reaches out after the usual two-week mourning period to help them fill up the necessary forms for claiming the insurance.    After a severe cyclone in the region a couple of years back, KGFS offered suo motu extra loans to all their customers and a moratorium of a couple of months for repayment.

 

The whole institution is truly driving towards working for the customer, ensuring that she does not fall into the debt trap which is very common in India, offers her advice, guidance, and counseling without any motives guided by self-interest, is there at her side when there is genuine need, and in short, is the true ‘friend for life’ that a lot of financial institutions claim to be in their advertisements. The incentives at every level are not geared to mere ‘sales’ or product-pushing.  Every member of the staff I met from the CEO downwards is driven by a sense of purpose, of wanting to do something good, of making a difference to society.  Every customer who walks in is treated with respect –  I observed that they were all addressed as ‘Sir’ or “Madam’ and  not talked down to – which given the circumstances and the profile is very rare.

 

And all this is being done without sacrificing profitability. The interest rates are very reasonable given the costs, both of obtaining funds, as well as the costs of running branches in such remote locations. They started about six years back and are now spread out with more than a hundred branches, mostly in Tamil Nadu,  and also in Uttarakhand and Orissa.  The model is highly scalable with knowledge being institutionalized and made part of the process on a continuous basis.

 

The people who work there are driven by a cause larger than themselves, while getting paid a decent wage. The customers who come will never forget that this is one place which treats them like decent human beings, genuinely cares for them, and does not look to exploit them in any way. The founders (Nachiket, Bindu and the rest) are providing a vision that keeps challenging the whole organization to do better and serve more.  Benefit to society and customer foremost, with complete personal touch and connect; scalability and process using the latest technology; profitability that ensures the equity holders’ interests, all these are part of the ethos.  That’s the stuff that organizational dreams are made of. I actually saw that in operation. I don’t know what Nachiket had in mind when he asked me to see how I could add value to them, but I certainly benefited from the experience.

 

I learnt a lot, and was somehow deeply humbled by the experience.  I suspect that  what I saw is only the initial stages of an institution that will grow much bigger in time, and like all great institutions, inspire others  to emulate it.

 

Ways to save on Taxes in fy 2013-14

Ways to save on Taxes

 

Now that the new financial year is round the corner, it’s good to see what options are available to us to save on our taxes. Not many, we all know, but let’s look at what little there are!

 

Let us first talk about the famous Section 80C.  Under this section you are allowed to deduct up to Rupees one lakh from your total income.  The tax you will save of course depends on your marginal rate – if you are at the highest rate, you will save about 30% of this amount.  To get something you always have to give up something – in case of 80C investments you agree to lock-in periods.

 

Some of the items allowed under this section, you may have already “spent” on or it may have been done for you.  Add up your contribution to PF for the year ; add any contribution to Voluntary Provident Fund with your employer if you have opted for it; tuition fees for your children; and principal repayments on your home loan. Add the premium you pay on your life insurance policies or ULIPs. If you have paid any amount on your own towards cost of purchase or construction of a residential property, add that too.

 

Now that you have done all that, if the sum exceeds Rupees one lakh you can stop, since the limit for Section 80C investments has been reached. If you have some money left from the limit, you have some options.

 

You can look at investment in Equity Linked Savings Schemes (ELSS) with a lock-in period of three years.  This comes with a good potential upside but has market risk attached. Or you can invest in Public Provident Fund (PPF) that will yield you around  8.5% p.a. currently – this is highly safe since it carries the guarantee of the Government of India. You can spend on insurance (I shall not use the word invest here – insurance is not an investment) – you would be well advised to stick to pure term insurance plans – the premium is deductible under Section 80C. You can invest in five-year (locked-in) Fixed Deposits with a Bank.

 

That’s all there is to it! There are a couple of other options like National Savings Certificates (no real advantage here – you can skip this option) and Post Office Savings scheme (too much hassle – skip this too).

 

Over and above the tax deductions available under Section 80C you have some other sections that you could take advantage of.  You have the new Rajiv Gandhi Equity Savings Scheme where if you are a first time investor in equity or mutual funds, and your annual income is less than twelve lakhs, you can invest upto Rs.50,000 for three consecutive years. You will be able to deduct 50% of the amount invested from your total income for tax purposes. Under Section 80D, Medical insurance for self, spouse or children up to Rs.15,000 is allowed as a deduction – you get an additional Rs.15,000 for premium paid for insuring parents. Section 80E allows a deduction for interest paid on loan taken for self, spouse, or children for the purpose of higher education.

 

The interest you earn on PF or PPF is fully exempt from tax – other interest is not.

 

You can also avoid paying taxes on capital gains from sale of long-term capital assets in certain cases. That is outside the scope of this article, but do check the provisions if you are selling any capital asset.

 

A modern-day soap opera

An Indian-origin nurse in the U.K. working in the hospital where Kate Middleton is admitted, gets a call from "the Royal family" which she passes on to some other nurse. Some detailed questions are asked which this other nurse replies to.  It later turns out that the call is a hoax, from a radio station in Australia.  A nice practical joke, if you ask me. There was nothing to suggest anything indecent or offensive in the call, and everyone could have had a good laugh and moved on. But the story took a twist.

 

The nurse, Jacintha, who passed on the call, naturally gets named  in the media, may have been a bit embarrassed by the whole affair, and had to endure a bit of leg-pulling from her colleagues. She went and  committed suicide!  I don't think being on the receiving end of a prank like this  is sufficient cause to commit suicide, and if she, well, happened to do it, it was her problem. May be she was depressed or something. Or unhappy with her family. Or slightly unhinged. Who knows? Anyway, since anything to do with the royal family grabs a lot of attention, this came to the attention of the media. Who blew it up bigtime.

 

The problem is, the story starts with a death – a real death. So no one can put things in perspective, and talk reasonably. Especially not if they are representing big institutions like the media, or the radio station in question, or if they are getting quoted. It is extremely politically correct to show concern at a tragic occurrence like this, while condemning those who may have been even indirectly a cause for such an action.

 

There is an uproar. Everyone says it is a tragic thing (which I guess it is), and everyone says that the caller (the guy from the Australian radio station) is responsible – by that logic, I can trace every death to someone or the other who had been cruel to the chief protagonist some time in their life.  The latest fashion in the media seems to be to pick up one death at a time (we will ignore incidents of mass killing like what keeps happening once every year in the US) where we can sympathize with the victim, and feel that they were unjustly done in. And then milk it to the hilt. Emotion sells. So make sure the newspaper drips with tears.  There are photos of the grieving family – notice how well they seem to have adjusted to the situation? The family is always shown with a grim visage, hugging each other, and dabbing tears – I am sure this happens whenever there is a camera in sight, since you can't sustain this kind of behaviour for days on end. 

 

Even if someone feels that this is being over-hyped, he or she dare not speak up. It is really, really, politically incorrect to sound so heartless. You can't even do it around the lunch table with your colleagues nowadays.  It seems to be a race to sound more holier-than-thou than the next man. Anyway, that is the subject of a separate discussion. Meanwhile, every day newspaper readers are exposed to tearful photos of the family hugging, or rather, of the family hugging tearfully, for a whole week. This happens across three continents, since the nurse who died was an Indian from Mangalore, working in the UK, and the call originated from Australia. The radio station in question is totally on the defensive and they have to be seen to be making amends. So there is a very tearful, regretful, apology from the callers in question, who are "very very sorry" and "devastated" by what happened, no doubt drafted by the communications department of the radio station, vetted by their lawyers across three continents, and released very tearfully; never mind what the callers are actually feeling. The radio station is also compelled (no doubt by its own conscience) to announce a couple of million dollars compensation to the victim's (sic) family, which I am sure, makes them hug each other more tightly when the cameras are in sight.

 

They follow her all the way to the funeral in Mangalore, and there are more tearful photos.  For the near future, whenever they are seen in public, they have to maintain a grim visage.  May her soul rest in peace.

 

What is the likely fallout of this? All big organizations, not only media houses, will be drafting fresh guidelines as we speak. No more practical jokes. No more jokes. No levity even.  It may lead to someone committing suicide.  Even jokes over the lunch table will be banned. As it is, it is taboo to mention "sensitive" subjects like race, religion, sex, politics, and anything in which there are diverse opinions. Now it will so become that you can't even pull anyone's leg, since they may take offence and commit suicide. That will not be a very good thing, so we should avoid taking any risk. What is the bet that all Vision Statements will start incorporating the word "sensitivity"?  Once they put it in their Vision Statements, you can't accuse them of being insensitive.

 

Meanwhile, people keep drowning by the hundreds in boat accidents, dying in fires in garment factories where the exits are blocked from outside, getting killed by pilotless drones dropping bombs into their weddings. Someone should take these tearful photos of single deaths to places like Kashmir, Af-Pak, North Africa, and ask them what they think about it. I am sure the response would be very vocal. But no one would dare publish it.

A tribute to Ravi Shankar

A rainbow that straddled the world,

Wowing both the East and the West,

With the traditional that he revered,

He broke bounds, mingling with world's best.

Bringing India to the world at large,

No better ambassador can be found. 

Who said "East is East and West is West"?

He proved him wrong, for through him, they met.

As did traditions of hoary age,

With the colour and dazzle of life.

His zest for life could not be contained,

By the usual rules that bind others.

At every stage in life he rebelled,

Breaking bounds, exploring the new.

But he kindled afresh where he went,

A respect for the past, born anew.

Genius cannot be contained by rules,

Nor should ever be made to comply.

His own path the Genius must choose,

Blazing trails for others to walk by.

--
Dinesh Gopalan

13 December, 2012

--
Dinesh Gopalan

mob: 9845257313; blog: http://www.dineshgopalan.com

My thoughts on what "Food" means

Article attached below on 'White Bread is "dead" bread', as an example of many such articles that we keep coming across.  While this one is correct in what it states, or at least the conclusion is correct (don't eat white bread), the problem with such information is also that, with food industry lobbies, government lobbies, allopathic lobbies, so-called scientific lobbies, sheer misinformed lobbies (like modern day nutritionists who don't know what they are talking about) controlling a lot of the research in the world, you don't even know what to believe. Plus the fact that some of the "accepted truths" about food and health, the postulates if we want to call them that, that are based on the "modern allopathic western" construct, are faulty. Any theorem built on faulty postulates is likely to be faulty as well, and most of the "wisdom" on food and health out there are theorems built on faulty postulates.

 

Most of the research on health and nutrition out there is absolute junk, and actively contributes to the deterioration of health standards the world over.  Is it a coincidence that health standards in the US, which is the country with the most processed/ industrialised food, and with the most research as well, and the biggest per capita "health (sic)" budget by far, are among the worst in the world - one-third of all US people are obese, and they don't know what positive, vibrant good health really means.

 

So what are some of the fundamental stuff about food that I consider "self evident truths" (self-evident at least to me)?

 

Listed below are some of the rules about food and health that I believe in and follow (at least substantially if not completely or fully, and for the record, I am not in the least fanatical about following these rules)  - all of these conclusions are based on a lot of reading over the years, distilled wisdom of natural-health experts, sifting and sieving, and eliminating all that is contrary. If you want more "proof" for each of these assertions, I cannot oblige because that would be a huge waste of time! 'Tis better to be considered dogmatic, than to waste time trying to prove your faith to non-believers (saying that I just made up)!  

Suffice to say that there is enough material to support each of these assertions - google, and thou shall find!  There is also enough material to support exactly the opposite assertions, and many other shades of assertions in between, as well. But then, "the essence of faith is to ignore the nay-sayers, the liars, the agents of the devil, the provocateurs, the saboteurs, who will sway you away from the true path" (another saying I just made up).

 

 

1) Eat only what nature gave, as close to what nature gave. In other words, eat "food". Manufactured products are not food. Examples of manufactured products, is anything that comes out of a packet or a bottle! That includes breakfast cereals and juices whether called "Real" or not.  

 

2) The body is a chemical factory, and breaks down food into its components and rebuilds the components into what the body needs. Therefore, food needs to be easy to breakdown. All natural foods are easy to break down, since they "spoil" - any foods that don't spoil  are by definition, not food.   "Only eat foods that spoil fast, but eat them before they spoil"

 

3) Do not count calories. It is a useless wasteful exercise. 

 

4) Drink lots of water. (Not soda)

 

5) Foods to avoid: those foods that are actually dangerous and highly harmful to health: white sugar; refined flour; any foods with high fructose corn syrup (which means most of what passes off  as food in western supermarket shelves); too much salt, dalda / hydrogenated vegetable oil; any kind of junk food - that includes pizzas, burgers, and all things of their ilk; white bread; carbonated drinks; ice-cold water / water from the fridge; all bakery products; all milk products (except butter and ghee which are good for health)

 

6) Foods to preferably avoid:  old food, stale food, food that has been cooked more than a few hours back, reheated food. Food kept in the fridge after cooking would by definition belong to this category

 

7) Foods to avoid at any cost: microwaved food. Avoid the microwave at all costs

 

8) Let your diet consist predominantly of plants / plant-based foods. In other words, fruits, vegetables and their ilk.

 

9) Minimize the consumption of grains - rice, wheat - as far as possible while increasing the consumption of fruits, vegetables, etc. as a proportion of the diet

 

10) Super foods - foods that are most excellent for health: all vegetables, all fruits, sprouts

 

11) Foods that are brilliant for maintaining health and have a lot of medicinal value as well (just a brief list, there are many): amla, honey (not the store bought honey that is processed, but raw unprocessed forest honey), flax seeds, fresh fruit juice (freshly extracted, less than five minutes old, since most of the nutrients get oxidised very fast), fresh vegetable juice (ditto)

 

12) As far as possible, buy seasonal, locally-produced stuff. It is not harmful to not do so, but generally better for health to follow this principle. Also, do not keep raw vegetables, etc. stored for too long – the extreme ideal is to buy directly from the farmer and cook the stuff immediately – though for logistical reasons one may need to buy for a few days at a time. In short, "Preferably ensure that the distance (and time) from farm to the table is as short as possible"

13) Eat sparingly. The less you eat, the less your body needs, and the healthier you will be

14) Fast frequently, for more and more extended periods.

 

15) Ignore fad diets. Following the above rules should be enough.

 

 

The above is a top-of-the-mind partial list.  There's more, but you get the general idea...

 

Also, I am not even getting into the science of food combinations (trophology) or into organic food.  Those are different dimensions of what good food means...

 

Would love to hear your reactions (which, by the way, it's enough to state, you don't have to prove your assertions!)

 

Dinesh

PS - forwarded article on 'White Bread' attached below

 

 

 

 

-----------------

 

 

 

White Bread is "dead" bread  (author unknown)

The Swiss government has been aware of the dangers of eating white
bread for decades and in order to get its populace to stop eating it,
Switzerland has placed a tax on the purchase of white bread. The tax
money is given to bakers to reduce the price of whole wheat bread to
encourage people to switch.

The Canadian government passed a law prohibiting the "enrichment" of
white bread with synthetic vitamins. Bread must contain the original
vitamins found in the grain, not imitations.

Essentially, white bread is "dead" bread. Frequently, consumers are
not told the truth about this and so called "enriched" flour.

Why is the color of white bread so white when the flour taken from wheat is not?

It's because the flour used to make white bread is chemically bleached
, just like you bleach your clothes. When you are eating white bread,
you are also eating residual chemical bleach. Flour mills use
different chemical bleaches, all of which are pretty bad. Here are a
few of them: oxide of nitrogen, chlorine, chloride, nitrosyl and
benzoyl peroxide mixed with various chemical salts.

One bleaching agent, chloride oxide, combined with whatever proteins
are still left in the flour, produces alloxan. Alloxon is a poison and
has been used to produce diabetes in laboratory animals. Chlorine
oxide destroys the vital wheat germ oil. It will also shorten the
flour's shelf life.

Good Nutrition: You Won't Find It In White Bread
In the process of making flour white, half of the good unsaturated
fatty acids, that are high in food value, are lost in the milling
process alone, and virtually all the vitamin E is lost with the
removal of wheat germ and bran. As a result, the remaining flour in
the white bread you buy, contains only poor quality proteins and
fattening starch.

But that is not the whole story as to the loss of nutrients. About 50%
of all calcium, 70% of phosphorus, 80% iron, 98% magnesium, 75%
manganese, 50% potassium, and 65% of copper is destroyed. If that is
not bad enough, about 80% thiamin, 60% of riboflavin, 75% of niacin,
50% of pantothenic acid, and about 50% of Pyridoxine is also lost.

Scientific Study Has Confirmed What The Swiss Have Known For Years
These horrific numbers are the results of a study run by the
University of California, College of Agriculture.

It is obvious, from what we have learned, that white bread should be
avoided. Whole wheat, rye, and grain breads made with whole wheat
flour is a better way.

It is a good idea to always read the labels and never buy foods that
contain artificial flavors, colors, bleached flour, preservatives,
hydrogenated or partially hydrogenated oils.

--
Dinesh Gopalan

mob: 9845257313; blog: http://www.dineshgopalan.com

The Cauvery dispute

The Supreme Court asks the two Chief Ministers to meet and agree!  How naive. What happened when Jayalalitha and Shettar met was as anyone would have predicted...

Tweedle dum and Tweedle dee

the two of them, could never agree.

Cauvery, Kolaveri, di,

Nanni adige dhaani ki,

meeru yovar andi?

Tweedle dum and Tweedle dee,

sat together to have tea,

The Court wants them to agree,

across the table, over some tea!

Tweedle dum and Tweedle dee,

have played this game for many years.

They don't really want to agree,

Some problems are not meant to be solved.

Tweedle dum and Tweedle dee,

lob the ball back to the court.

If it decides, they don't agree,

for they have voters who support.

Tweedle dum and Tweedle dee,

have roused thousands with ire.

If they say they agree,

Both their states will be consumed by fire.

The sides send their champions to fight,

if they lose, they can't return.

Who wants to listen to the other side,

When their own lives are threatened?

No one else wants to handle,

the hot potato thrown at them.

governments and courts fear this squabble,

for no one listens to reason.

Meanwhile Tweedle dum and Tweedle dee,

have elections to win, rabbles to rouse.

Nothing on earth can make them agree,

threatening blood, they enact a farce.

Dinesh Gopalan

30 November, 2012

--
Dinesh Gopalan

mob: 9845257313; blog: http://www.dineshgopalan.com

The increasing clamor against gold

Over the last few months, coinciding with the time Chidambaram took over as Finance Minister, there is an increasing lobby calling out for curbing gold imports into India. 60 billion dollars of India's annual import bill is due to importing gold.  One of the ways of shoring up the domestic currency is of course to discourage dollar outflows arising due to imports. Subir Gokarn, deputy Governor of RBI seems to be at the forefront of this campaign – he can be frequently seen deploring the love of Indians for gold, and exhorting banks to come up with innovative schemes to divert this money into some innovative schemes 'linked to gold'.

 

It is being reported that finance ministry mandarins and bankers are considering introducing 'gold linked deposits / schemes' where people can invest in financial products whose price will vary with the price of gold. Whether the underlying investments of the scheme will actually be in physical gold is hard to guess. What the government really wants to do is to pander to Indians' appetite for gold – it knows it can do nothing to curb that – while at the same time appropriating the money for its own uses.

 

The financial industry seems to have taken this cause up with enthusiasm. There is suddenly a spate of learned articles appearing in dailies extolling the virtues of investing in 'fictional derivative' (the term is entirely mine, they never use it) products linked to the price of gold.  To those who followed the 2008 financial meltdown, this could evoke a sense of déjà vu. Synthetic credit default swaps, anyone?

 

Of the approximately 2400 tons of gold produced worldwide annually (of which India contributes a negligible part since India never produced gold in any significant quantities), India imports about 800 tons every year.   Indians' appetite for gold dates back to ancient times when India imported gold and precious stones in exchange for spices exported out of the country. It is estimated that one-third of all gold ever mined and existing above ground – i.e. one-third of about 160,000 tons – is resident in India.

 

Gold while being intrinsically useless – it has no utilitarian value worth talking about – has always been considered a very good investment. The primary reasons are: it is scarce thus preserving demand, it is 'dense' thus taking up very less space, it does not react with most chemicals or corrode thus preserving value over time, it can be easily divided into small pieces or melded into large ones, and it has value around the world and has been considered valuable through the centuries.  All qualities that made it ideal currency material till the governments of the world conspired to move away from the unsustainable (to the profligate) gold standard.  Indians have always understood this instinctively – you don't need to hold a class to explain all this to the most illiterate villager. She understands the value of gold, and does not get swayed by specious arguments against it, smart woman!

 

Witness what happened when Morarji Desai, then finance minister, tried to place restrictions on Gold in 1963 following the India China war. The Gold Control Act, 1962, banned gold loans given by banks, banned forward trading in gold, and banned production of gold jewelry above 14 carat fineness.  This did not have any significant impact and was followed by the Gold Control Act, 1968, which prohibited Indian citizens from owning gold in the form of bars and coins! Goldsmiths were not allowed to hold gold more than the bare minimum required to make jewelry. Did the demand for gold drop due to these measures? Not at all. It is estimated that about half of India's imports in those days were of gold!  This is about the time when smugglers became the new badshahs.  Those who grew up in the seventies will remember the Hindi films where the hero entangles with crooks landing contraband gold on a suitably desolate coastline.  Moral of the story?  It is easy for governments to control imports of elephants. But it is somewhat more challenging when it comes to a commodity like gold!

 

The US has also had its fling with banning gold. In 1933, the Roosevelt government made it illegal for private citizens to hold gold, and ordered them to hand over the gold they had to the government. The measures met with a little more success in the US than in India, but then they are not genetically wired the same way as Indians; in fact I would go further and say that US citizens are more naïve and  prone to accept things at face value! It also goes to show that governments are wary of gold in private hands – no institution likes power being distributed widely in so many hands that it cannot exercise control over.

 

What has been the performance of gold recently as an investment? In the last five years, gold has increased 200% in value while the sensex has dropped 6 percent. While this need not always be the case, and one needs to take a longer term view, it is true that gold is at the very least guaranteed to protect your money against inflation. And against debasement of the currency which is a real risk nowadays with all governments indulging in a race to the bottom, by printing more notes.

 

Real estate and gold are the two things one can physically control, without other people determining their fate. By gold in this context, I mean gold held physically by you in your own hands. What is to prevent governments from commandeering all gold and giving you currency notes in return under the excuse of a real war or an imagined crisis?  I am not wishing to sound alarmist here, but historically that has happened. Of the two, gold is more easily 'hideable' and transportable than real estate, thus making it ideal for holding against extreme eventualities. 

 

As to 'gold linked derivative' products, I have no faith in them.  The total outstandings of such products out there in the market are far more than the actual quantity of gold available. Also, financial instruments, whatever the underlying may be, and whoever the guarantor may be, are prone to default or expropriation.

 

It is good to continue holding gold for a certain proportion of your net worth. Gold in physical form. In your own custody. Not as a financial instrument.   But then, if you are an Indian, I don't have to belabor that point. You understand that instinctively, don't you?