India Uncut

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Friday, December 16, 2005

Gold over PPF

Gautam Chikermane writes in the Indian Express:
The villager in Nu, about 100 km off Delhi, is unconcerned with anything beyond his crop and capital. As and when he generates a surplus, if it is large enough, he buys land; if it is smaller, gold. Now, there are more than 150,000 post offices, four out of every five catering exclusively to rural areas, according to Department of Posts. They are supposed to offer small saving schemes like PPF to small savers. As we all know, these are instruments that offer artificially high returns that are guaranteed by the government.

And still, farmers, farm workers, petty traders, the whole village economy buys gold, not PPF. The reason? Access. Try opening a PPF account there and you face a process, a bureaucracy, a system that forces you to hit gold. Try opening a bank account with a public sector bank in the closest town and there are no cheque books. Simple matters that we take for granted in cities turn into full-fledged projects. Are these instruments, these banks (for now, we’re not even talking about mutual funds) the exclusive preserve of the educated, wealthy, urban citizens?

Surely, there is a logic why people buy small amounts of gold for their daughters in these villages—gold, for them, is a means of last resort. But here lies the surprise: most of rural India does not, as analysts imagine, buy gold jewellery, but gold coins.
Read the full piece.

Intention, PPF. Outcome, gold. Reason, system of government: unaccountable, centrally governed, no incentives to perform, few disincentives from slacking off. You can use Chikermane's example as an analogy for so many other areas in which our government fails us.

And in many of them, the option of gold isn't there.

Cross-posted on The Indian Economy Blog.
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