Earlier this week, the government reduced the customs duty on the import of gold by half, bringing the price down by Rs 15,900 per tola in a single day. The price dropped further by Rs 2,600 on the second day. The per tola price rose again on the third day. The government's recent policy adjustment – the reduction in customs duty on gold imports from 20 percent to 10 percent – was aimed at curbing gold smuggling, which had surged due to the price disparity between Nepal and India which share an open border. This policy approach appears to have suddenly made gold more affordable and led to a buying frenzy of sorts among the Nepali consumers traditionally obsessed with gold. Nepalis love to buy and stockpile gold for a variety of reasons: Buy it in the good times; mortgage it or sell it – invariably for more – during the rainy days. Gold at hand is just as good as having liquid cash in the bank account. In Nepal and across South Asia, it is also a cultural symbol of wealth and financial security. It is probably the safest investment that one can think of - even if economists and architects of fiscal policy would interpret buying gold as an unproductive investment, ultimately doing no good to the national economy.
The gold traders in the Capital valley and beyond suddenly find themselves unable to cope with the sudden surge in demand from the customers. The traders suspect manipulation by commercial banks legally mandated to import the precious yellow metal. They also suspect fellow traders and their associations playing foul in creating the shortage. However, one must not forget that the demand for gold has surged globally and this is not a phenomenon typical to Nepal. Even the central banks in many countries are learned to have purchased the precious metal and significantly increased their gold reserves. For individuals, gold is a hedge against inflation and currency devaluation. For governments, gold serves as a critical component of foreign reserves. Nepal allows 16 commercial banks to import 20 kgs of gold per day. The gold dealers say the quota is not enough to meet the daily demand. They want the daily ceiling raised to 25 kg because Nepal has adequate foreign currency reserves and can afford to raise the bar. The government may be advised to consider reviewing whether the traders' demand for raising the per day gold imports limit to 25 kg is a legitimate call.
Beyond neighborhood
The doubts raised by gold dealers and traders highlights the need for a more comprehensive strategy to manage Nepal's and Nepalis' gold obsession. In order to monitor and control gold imports, the government can and should enhance the existing regulatory framework. This calls for stricter enforcement of the existing laws and the introduction of necessary steps and/or regulations to prevent illegal activities. There is a need to ensure transparency in the gold market. We need to educate the general public about the risks and benefits of investing in gold versus other financial instruments. Financial literacy programs can help citizens make informed decisions and diversify their investments, reducing over-reliance on gold investment. The government should come up with schemes to promote alternative investment options such as bonds, stocks, and mutual funds. Providing incentives for these investments can help shift the focus away from gold and towards more productive assets that contribute to economic growth.
