Can Inflation Index Bonds replace gold as a safe investment....???

By Anonymous
             
India is the world's largest consumer of gold, accounting for some 20 percent of the world's demand.
In India gold is historically and culturally tied to the concepts of wealth and prosperity. The demand for gold has been increasing drastically in India which lead to a current account deficit of 4.3%.  Govt tried to reduce the import of Gold by imposing 75% import duty. But still the demand for gold is not reducing, so to curb this demand the govt introduced Inflation Index Bonds in this year's Union Budget. Inflation Index Bonds have been recommended in the Economic Survey Report of 2013. RBI soon going to issue the IIB''s on 4th June 2013 to protect the savings against the rising prices.

The reason why these bonds are launched because Inflation erodes the purchasing power of money and people are investing in gold as a hedge against inflation. The advantage of IIB is that adjusts its interest payments depending on the inflation rate. As the inflation rate changes every year, so does the cash flow from the IIB. The other advantage of the IIB is that it not only adjusts the interest payments to inflation but also the principal repaid to the investor at the end of the bond's tenure.

Although inflation-indexed bonds prove beneficial during times of high inflation, they underperform when the economy goes through a deflationary phase and prices actually come down. So it cannot be said that the IIB's will replace the gold as a safe investment and another  big drawback of these bonds is that they have been indexed to the WPI and not the Consumer Price Index (CPI). For most investors in bonds, the CPI is the more relevant index. Consumer prices matter to them in day-today life than wholesale prices. Above that the Indians has been attached to gold as it is used as a traditional jewellery for all the festivals and occasions in India. Even after the fall in gold prices recent Akshaya thrithiya Festival boosted the demand for gold. In a country like India it is believed that if the gold is bought during Akshaya thrithiya or Dhantheyras the whole year will bring financial prosperity. These festivals creates a key gold buying occasion in India and the consumers are obsessed especially the women consumers ,so the obsession will bring the market for Gold in India. So let's wait and see whether the IIB's will replace the gold or not??
 By Sneha Baby, Intern at CPPR

Comments

Post a Comment

Popular posts from this blog

CPPR's social media presence on Blockathon makes a mark!

By Anonymous
Image
by Shonit Nayan US Consulate General, Chennai; with Centre for Public Policy Research (CPPR), Maker Village and Kerala Startup Mission (KSUM) organized 'Blockathon for Change' to address the societal issues of migrant labourers using blockchain technology. Migrant labourers are often a disadvantaged and vulnerable group because of associated socio-economic and cultural issues. In India, massive interstate migration of labourers poses serious predicaments warranting immediate attention both at the ground level and policy level. The first-of-its-kind hackathon in India was designed to beneficially employ the blockchain technology for offering comprehensive solutions to mitigate problems related to migrant labour. While interning at CPPR, I got an opportunity to be a part of my first hackathon. I learned how social media platforms were extensively used to create buzz for the Blockathon and blockchain technology. CPPR ...
Read more

Latin Catholic community of Kerala: Role in 2016 Assembly Elections

By Anonymous
Image
By Dr D Dhanuraj & Sambhavi Ganesh Latin Catholics (LC) in Kerala number about 20 lakhs with 2 Archdioceses (Verapoly and Trivandrum), and 9 Dioceses. They have a significant presence in Ernakulam, Thiruvananthapuram, Kollam, Alleppey, and Thrissur districts. This community is politically influential, which, through its socio-political wing Kerala Latin Catholic Association (KLCA) and Christian Service Society (CSS), protects its interests. Traditionally, Christians in Kerala have supported the UDF alliance and same is the case with the LC also. The major reasons for support are- The professed atheism of the communist party-backed LDF. The involvement of the church in health and education sectors, which the LDF opposes due to its anti-commercialization view. The ‘abstinence’ stance taken by the LDF over alcohol prohibition unlike the clear pro-ban position of the Congress. Even though the LC continued to support UDF during the early yea...
Read more

Road Safety in India- Still in Coma

By Anonymous
 By  Pallavi Rachel George * “It’s Road Safety, Not Rocket Science” is the road safety program of the city of Philadelphia. The program provides extremely catchy phrases like “objects in the mirror appear only when looked at- its road safety not rocket science”, telling its citizens to be smart on the roads. The initiative has received a lot of attention. The reason why I began the article with this example is to quickly make the reader wonder about a ny such programs in their locality. If you were able to come up with one, kudos. If however, like the majority of the people, you weren’t able to find one, then we need to do some thinking. Every year, approximately 1.3 million people die as the result of road traffic collisions — more than 3,500 deaths per day. According to the World Health Organisation (WHO), road traffic accidents kill more people around the world than malaria, and are the leading cause of death for young people aged five to 29 – especially in de...
Read more