Gold Always Glitters In India: Will Curbing Its Import Save The Economy?

"An inch of time is an inch of gold, but you can't buy that inch of time with an inch of gold." Is this Chinese proverb proves correct in the case of Indians who invest in the yellow metal for good times tomorrow? Or, is the craze for the glittering object really ruining the country's economy?

Time and again, the government, economists and experts have ridiculed the people's obsession with gold and pointed out the need to curtail the imports of the yellow metal to improve trade deficit.

Indians have an irresistible temptation to buy gold - either as ornaments or as investments. Their obsession with the gold jewelry has roots in their culture, tradition and also in the economic realities in the rural and grass root levels of the society. As an investment, gold has been an easier bet to hedge against inflation and other risks. Indians have been buying and trading in gold since time immemorial, and they continue to buy even now, at a time when it is more expensive than ever before.?

The government and experts believe that high gold imports are fatal to the economy and Indians should stop investing in gold. They say this would solve India's economic problems, erase the current account deficit, appreciate rupee and boost growth. ?They say the country's balance of payment (BOP) is negative because of the gold imports.

"Quantum of import of gold ... is a clear indication (that) large section of community...want (to) investment in dead asset only with expectation that value would appreciate", Finance Minister Pranab Mukherjee said while speaking at a function in Mumbai last week. He said that "there is a need to spread financial literacy to encourage people to invest in?market instruments" and dissuade them from investing in gold.

Follow us

The government believes India's common men can easily save the country's faltering economy by sacrificing their passion for gold.

However, the people who have spent their fortunes on gold and a section of analysts have a different point of view. They say though gold imports affect the country's BOP position in the short-term, India's gold reserves will benefit the people and the country in the longer run. They feel there is no base in saying that gold is idle asset. "From investors' point of view, gold is not an idle asset. When it is appreciating, it is not a dead asset for the holder," says Jayesh Nathwani of FXWire.

To understand both the standpoints, one needs to understand what gold means for Indians and the cultural and economic reasons associated with this.

Quick Facts About India's Gold and Economy

• India is the world's largest importer of gold. India accounts for nearly one-third of the total world demand for gold. India's gold imports were higher than those of twelve of its states' GSDP in the year 2010-11.
• Gold's share in total import bill of the country has gone up from 8.1 percent in 2001-02 to 9.6 percent in 2010-11. The average rate of growth of gold imports in the last three years was 26.8 percent. At this rate, the gold import bill will be approximately $ 100 billion by 2015-16.
• According to a World Gold Council report, India has savings rate of approximate 30 percent and 10 percent of this is in gold. It says that gold reserves in India, both with private and government, was around 20,000 tons at the end of 2011 and it is worth roughly Rs 54 lakh crore, which is 60 percent ?of the nominal GDP of India in 2011-12.
• Gold import value for the year 2010-11 was higher than the budget-estimated expenditure on Urban Development, Housing, and Family Welfare for the year 2010-11.
• According to the Gold Council report, gold jewelry accounted for about 75 percent?of the total Indian gold demand in 2009, the remainder?being investment (23 percent) and decorative and industrial use (2 percent).
• Demand for gold in India is not depended on international prices and is depended on the seasonal demands in the country, like weddings and festivals. So people tend to buy gold whatever may be the price in these seasons.

India's Golden Tradition

Gold is a part and parcel of India's culture and traditions. As money, jewelry, status symbol and investment, gold has played a crucial role in the lives of Indian foe centuries. A family's wealth was determined on the quantity of gold and land they had. Gold is considered as "Lakshmi" (the Hindu goddess of wealth) and a symbol of prosperity.

Traditionally and as a religious practice, an Indian woman wears ornaments throughout her life. Gold is her favorite jewelry. Normally, from childhood to the end of her life, gold adorns her body in several forms depending on her wealth and status. ?Though the trend is tilted towards platinum and white gold in recent times among the urban elite, for the middle and lower class families, jewelry means only gold.

Nothing could replace gold's stature and importance in the Indian society. In south India, the first food a newborn consumes will be gold. According to the tradition, the elder family member will make a paste of a local herb and minute amount of gold and feed the baby. This is believed to bring wealth and prosperity to the baby in his/her life.

Gold is also part of the religious practices at homes and temples. In several states, the yellow metal is worshipped as a symbol of Lakshmi and wealth.

monkees last train to clarksville tim tebow taylor swift post grad arpaio carol burnett neil degrasse tyson