India Gold Tax & Confiscation; Bitcoin as Wealth Protection

Journalist:
Joseph Young @iamjosephyoung
December 10, 2016

Amid the government’s war against cash, local authorities have begun to regulate and restrict gold, a store of value that has been the foundation of the Indian culture and society. Gold holders are being taxed and threatened, as the Indian government continues to fight “black money.”

However, one major issue persists in the government’s impractical strategy to eliminate illicit transfer of funds. That is, regardless of the intentions of the Indian government and Prime Minister Narendra Modi, it is the general population or 99% of citizens and residents that are being negatively affected by these regulations.

Gold is an important element of the Indian culture and history. Over the past century, gold has been the safe haven asset for the Indian people and it is used to produce Indian jewelries, which account for nearly 78% of India’s household savings.

When rumours on gold importation ban and restriction first emerged due to the plunging price of gold in India, most investors and traders dismissed the speculation claiming that the government will not even attempt to impose such regulations on gold considering the inevitable outbreak of the Indian population that it would ultimately lead to.

Peculiarly, Prime Minister Modi released a statement on November 25 to local media outlet NewsRise, announcing the restriction on both gold importation and domestic holdings of gold. As a result, the demand and value of silver surged, as households, investors and traders began to search for alternative assets to protect their wealth.

The GFMS Gold Survey 2016 revealed that India is the world’s largest consumer of gold jewellery. Despite its rising demand, India produces less than 1.5 tonnes of gold a year, importing nearly US$25 billion worth of gold on a yearly basis.

In 2015, Minister of State for Steel and Mines Vishnu Deo Sai noted that India’s gold production dropped 8 percent in 2014, causing premiums on gold prices to rise.

With 78% of Indian household savings stored in gold and national production of the precious metal declining, the restriction on the importation of gold, as well as taxation and confiscation of household gold storage will lead to a major economic and financial shock in the upcoming months.

More importantly, it will push investors and high profile traders to shift towards alternative safe haven assets such as silver or bitcoin. Investors are already showing increasing interests in silver. But, due to the crackdown on cash and gold, a vast majority of investors speculate potential restriction on silver trading.

Currently, as cash and gold are targeted by heavy and strict regulatory frameworks and policies, investors and traders are desperately seeking for alternative assets. Even decentralized and highly liquid assets like bitcoin has significantly high premiums in the Indian bitcoin exchange market, primarily due to the inability of international cash transfer or restriction in FX trading.

Although the purchasing of digital currencies like bitcoin could be difficult considering the government’s crackdown on cash, bitcoin still remains as the only viable alternative to most households investors.

Featured image from Shutterstock.

Joseph Young @iamjosephyoung

Hong Kong-Based Finance Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the fintech space since 2012.