Paper instead of gold.

The government wants people to stop buying gold because it costs $80 billion per year to import gold and worsens the Current Account Deficit. There are only 2 assets you can buy to hedge against inflation and the falling rupee - gold and property. However, property prices are so high that you can buy nothing with, say, Rs 50,000. After all you cannot buy one sq inch of land. But you can buy 5 or 10 grams of gold which makes it an ideal investment . To stop purchase of gold taxes were increased but this has not deterred people so now they want to tempt people to buy shares. The first bait was the Rajiv Gandhi Equity Scheme which reduced the Securities Transaction Tax on first time investment of up to Rs 50,000 in shares. This found few takers. So now they are thinking of changing the Equity Linked Savings Scheme which allows you to deduct a maximum of Rs 100,000 from your taxable income every year by locking your money in the scheme for a minimum of 3 years. This means that no matter what happens to the stock market you cannot sell out. They want to increase the amount people can invest in this scheme. TOI 19 December. There are 2 reasons behind the government's actions. The first is that the government is broke and the Congress wants to raise money to bribe people to win general elections in 2014. The next budget is its last chance so it wants to raise as much as possible to give away. One way is to sell parts of Public Sector companies. In March they wanted to sell 427.7 million shares in ONGC at a floor price of Rs 290 per share to raise Rs 120 billion. Sadly there were no offers so the Life Insurance Corporation of India, a government controlled company, was arm twisted to buy up shares at Rs 303 per share to raise Rs 127.47 billion. This was proclaimed as a big success but was a rip off of the public because the share closed at Rs 256.20 yesterday. In November sale of Hindustan Copper shares raised Rs 8.08 billion again with a large chunk of LIC money. On 12 December 40 million NMDC shares were put on the block at a floor price of Rs 147 per share. Seems that the offer was over subscribed 1.7 times but strangely the Bombay Stock Exchange allowed the sale to continue after the closing time of 3.30 PM. Apparently the RBI bought back gilts worth Rs 116.50 billion on 5 December from the LIC and government banks to allow them to buy NMDC shares. TOI, 24 December. The second reason that the government wants to lock our money in shares is because it is terrified of what happens in the US. If the fiscal cliff is averted and the US Congress reaches a deal the US economy and the Dow will zoom up. All the money that has come here from the Fed's Quantitative Easing will vanish and our market and the rupee will go into free fall. If our money is locked in for 3 years the market will not fall as much. They want to give us worthless paper for our gold. How sinister is that?