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(Precious) Words of Wisdom : "Only those who are asleep make no mistakes." ~ Ingvar Kamprad

Investment where Indians don't look for Returns

We all know about the legendary love for gold amongst Indians. 

In 2011-12 India imported about Rs.3,00,000 crores worth of gold. In the 9 months of 2012-13, about Rs.2,00,000 crore worth of gold is estimated to have been imported. This is an unbelievable amount of gold consumption for a "supposedly" poor country that India is thought to be.

In fact, the matter is so serious that such imports have worsened India's financials, weakened the economy and the rupee. So much so that the FM is having sleepless nights.

However, this demand has been steady for many years. It is not as if suddenly people are buying more gold due to the excellent returns from gold in last 4-5 years. No, that benefit is incidental. People would have continued to buy gold even if the prices had halved.


As I had mentioned in one of my earlier posts, a large part of this demand comes from people who do not have easy access to other investment options. Beyond the top 15-20 cities, there are practically no banks, no MFs, no insurance, nothing. So what can people do? Where can they invest their surplus cash? No option...but Gold. Also, gold acts a good collateral to get loan. Naturally, these people will not look at returns.

Another significant portion of gold demand comes from India's favorite pass time after cinema and cricket...marriage. Huge amount of gold is exchanged during marriages. So every family starts accumulating gold since birth of a child so that they have enough by the time their child reaches marriageable age. Again, since the gold is to be gifted, returns do not matter.

So I guess it make more sense to
a) make other financial products easily accessible to the masses
b) impose gift tax on gold transferred during marriages.

This will probably bring down the demand for gold and reduce pressure on India's finances much more effectively than tinkering with import duty on gold or some such measures. Treat the root cause, not the symptoms.

In the interest of India's fiscal status, every patriotic Indian would do well to reduce buying gold. Jai Hind.   


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