Page 4 - IACC Newsletter March 2013 Issue no. 9

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President’s Message
Dear Members,
The good news is that the US economy is picking up and that too in an appreciable manner. A look at some of the
current macroeconomic variables is revealing. Personal income increased to 1.1 per cent in February 2013 as against a
negative growth of 3.7 per cent recorded in January 2013. Consumer spending looked up at 0.4 per cent in February
2013 against a flat growth in the previous month. The personal saving rate locked a growth of 2.6 per cent in February as
against 2.2 per cent in January 2013.
Back in India, there has been some respite from inflation, which has come down below 6 per cent, first time since the
last three years. Exports are looking up, though a turnaround is yet to be noticed. Widening current account deficit and
low pick up in manufacturing growth and consequent jobless are major concerns.
Despite the standstill in the euro zone, recovery in the US, economists believe, is the trailblazer for heightened global
economic activities. But the post- recession US is more conscious and careful about its growth models. There are many
laws and regulations to insulate economy from overheating. Risk appetite will be more calibrated and cautious. In effect
a new financial architecture is emerging there. It is important that as one of the largest economies in the world and
having the US as a major trading and investment partner, India has to be in sync with the new financial superstructure
being evolved there. That needs more consultations, ground work and preparedness.
Growth paradigms have prospects and challenges. Let me flag mark one of them. Decline in the price of gold is a direct
impact of the recovery of the US economy and the debt mess that have caught up with some of the fragile European
economies. Nations are selling off their positions in gold to invest in the share markets in the US in anticipation of a
smart recovery of the corporate sector. Also, distress sale of gold stocks by the debt ridden economies in Europe like
Cyprus and Greece has created the supply –demand mismatch in the yellow metal, which ruled the roost till date, even
after the dismantling of the gold standard.
Economists are debating whether the gold would get back to its pristine period. Perhaps, this may be an academic
discussion and such debates have happened even before. But gold has recovered proving the doomsayers of the yellow
metal wrong. But we have to be pragmatic and have to learn lessons from history. Not long back, before the advent of
the 20th century, we had the silver standard. But later the metal had lost its lustre when countries switched over to gold
standard. Could this also happen to gold since strong position in gold was taken, mostly to hedge against hyperinflation
or crash in the property prices? Hyperinflation, as that happened in Argentina in 1989 when inflation touched the dizzy
height of 189 per cent in one month, cannot be a possibility on account of the financial discipline code unveiled by the
nations, regional groups and multilateral organizations.
US and India rank top among the gold rich countries in the world. In India we have large gold reserves with the
households. India is one among the countries having a large annual inflow of gold. Over the years, we have considerably
relaxed the import of gold by the individuals and households. That has increased the stock. A crash in prices of gold
portends major catastrophe for both the countries. It is prudent, therefore, both countries increasingly engage in