Headless chickens.

Various arms of our government are running around trying to come up with ideas of how to thwart the looming disaster of economic meltdown and a credit rate downgrade to junk status. The problem is that they cannot touch the real disease making the economy sick, which is enormous government spending, and hence all the ideas are merely an attempt to kick the can down the road and hoping that they will disappear. Yesterday, the Deputy Governor of the Reserve Bank, Subir Gokarn said that to reduce the physical import of gold it should be " dematerialised " like other financial instruments. TOI, 26 November. " If ( high gold imports ) is causing some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing," he said. He means that if people want to buy gold they will not be given lumps of the yellow metal but a paper showing how much gold they hold. The reason is that gold import has doubled to 1000 tonnes per year since 1999 and since India does not produce any gold it is adding to our import costs and increased the Current Account Deficit to 4.2% last year. The reserve bank is trying to curb the import of gold and the government has increased tax on gold to 4% but if they make it too difficult smuggling will resume and another Haji Mastan may start operations. The demand for gold is so resilient because people have no other safe investment which they trust. Fixed deposits in banks lose money because banks pay 7% in interest while the Consumer Price Index is 10%. Instead of making any effort to tackle inflation our most revered Finance Minister keeps putting pressure on the RBI to reduce interest rates further to " stimulate growth ". The stock market is highly manipulated and people have been cheated so many times that they avoid investing in shares. There are only 2 avenues for investment where money is safe and guaranteed against inflation and they are gold and property. Trouble is that there is a gigantic price bubble in property with prices having zoomed 1000% since 2002 and you cannot invest small amounts of money in property. You may invest in shares of construction companies but most people think builders are gangsters in fancy clothes. Most building firms are  unable to pay their bank loans and instead of forcing them to sell off their housing stock to bring down prices our Finance Minister is urging banks to restructure bad loans with our money. So the only alternative is gold and even though the price reached Rs 32,850 per tola, which is about 11.3 grams, people still prefer to own something that they can sell in an emergency. People are hedging against inflation and further fall in the value of the rupee. With headless chickens running the country they are right.