The speculative character of the equity markets breeds distrust among potential first-time investors
The ministry of finance recently introduced gold bonds for Indian households, a commendable step to channel India’s large household savings to productive uses. The Employees’ Provident Fund Organisation has just taken baby steps to invest a small fraction in the equity markets, for the first time in its 65-year history. Finance minister Arun Jaitley and his deputy Jayant Sinha have repeatedly exhorted Indian savers to invest more in productive assets such as equities. In the 21st century, foreign investors have invested approximately $200 billion in the stock market that is presumably used for economic activities to generate jobs. In the same period, Indians spent the same amount to buy gold that is stored in bank lockers and under mattresses. Gold bonds are an attempt to lure households’ savings away from mattresses to markets. As the government starts to cautiously nudge household savers from the mattress to the market, the bedrock for this shift is households’ trust in markets.