For the love of gold
In gold we trust, the Indian story of wealth
According to the World Inequality Report 2022, India is one of the most unequal countries in the world in terms of both income and wealth inequality. It is estimated that in 2021, the top 10 percent of Indians held 57 percent of the total national income while the bottom 50 percent’s share was just 13 percent.
But wait, what about the hidden reserve wealth of India ? The never ending love for gold. Many Indians believe gold as a sign of power and wealth. Since the data collection started from 1916, India consistently bought one-third of the gold produced world-wide annually.
The middle income group, or Indian households earning ₹2–10 lakh a year, invests more on gold than the rich, accounting for about 56% of annual gold intake of 800–850 tonnes. More than 75% of Indian households own gold in some form or another and according to World Gold Council in 2018 Indian households have stocked up to 25,000 tonnes of gold.
Temple as gold’s abode
The Indian household gold reserve estimate doesn’t consider the gold in legendary Indian temples . According to a 2015 assessment by the World Gold Council, India’s temples hold about 2,000 tonnes of gold. However in 2016, there was another estimate which put this number between 3,000 and 4,000 metric tonnes with one of the popular temple like Tirupati adding an average of 1.2 tonnes of gold annually.
During 2020–2021, 240 tonnes of Myanmarese origin gold seized by officials and this was only 69 per cent of the total gold seized that year. One unofficial estimates suggests on an average 400 tonnes of gold is illegally imported to the Indian market every year to escape the high taxes.
The grace of gold is like insurance
Today in India, gold is largely seen as a pension and insurance product of the masses where 93% of the total workforce is in unorganized sector. Indian economy was largely dominated by unorganized sector contributing up to 52.4 per cent of the gross value added (GVA) or the formal gross domestic (GDP). However in 2020–21, due to the pandemic the share of the informal economy had fallen drastically to 15–20 per cent due to frequent lockdowns.
During the pandemic, Indian gold loan companies claimed that gold monetization had helped many individuals, families and entrepreneurs who wanted to restart their business after the lockdowns in a big way. This large scale distribution of wealth in the form of gold reserves with the citizens could have insulated the impact of the pandemic to a great degree. This has drastically reduced the burden on the Indian government to recover the economy with relief funds as seen in other nations.
Let gold do the driving
In his book India Uninc, Prof. R Vaidyanathan mentioned some of the drivers for Indian households stocking up on gold as a form of reserve wealth :
- Aesthetics and tradition — Gold is easily related to by general population and deeply connected with tradition. It’s easily accessible, divisible, easy to liquidate during the time of crisis and could be easily passed on as an asset to the next generation.
- Family savings— Families form the main driving force for the household savings. The dominant household form in India continues to be a mix of couples living with their children of any age, followed by extended families. 93% of Indian domestic investment comes from domestic savings and 80% of this is household savings. Indian domestic saving rate is 30% -32% which is arguably highest in the world. The poverty rate of lone mother households in India are 38% in comparison to 22.6% for dual-parent households. On the contrary in 2020, United States had the highest household debt when measured as a share of gross domestic product (GDP). United States has world’s highest rate of children living in single-parent households.
- Fear of the unknown — An uncertain future which is pushing families to save 25%-30% of the income— Trend of everyday rising costs. From 1960 to 2020, the average inflation rate was 7.5% per year. Overall, the price increase was 7,323.90 %. An item that cost ₹100 in 1960 was so charged ₹7,423.90 in the beginning of 2021. Around the same period gold price was ₹63.25 in 1964 ( 24 karat per 10 grams) whereas same costs ₹48,651 in 2020. Ever increasing education costs for a good quality education , especially in private institutions. Nearly 85% of Indians are non-government / non-corporate employees hence not covered by any social security schemes during retirement. High rate of corruption, widely prevalent bribe culture, heavy regulations which hinders ease of doing business.
On the surface Indian household love for gold is not accurately represented in the official reports on the gold reserves by country, where India is in 9th position ( US is top country in terms of gold reserves with 8133.5 metric tonne ). Hence gold still remains as the hidden reserve of wealth distributed among Indian households who are individually empowered to make choices.
Is too much of anything is dangerous unless it’s gold’s love ?
Gold imports has its share of the negative impact like decline of the Indian currency , forex reserves and increase in the trade deficit. At the same time modern economic ideas haven’t successfully tackled the disparity between the rich and poor . The gap between the rich and poor is ever widening in most countries, with richest 1% now owning half of world’s wealth.
The age old Indian wisdom about gold as a measure of wealth in my opinion has enabled decentralization of power out of the hands of the few to the general population. Unlike the recent economic ideas like NFT market, crypto which has been an attempt at re-centralization of power into the hands of fewer. A balance between modern economic ideas and traditional wisdom like household gold reserves could help decentralize overall wealth of a country, empower the citizens and stabilize the economy.
