Gold Is One of the Largest Assets of Indian Households
As per WGC estimates, Indian households own about 15,000 tones of gold, accounting for about 10% of the worldwide stock. At current market values, we estimate that gold accounts for about 10–15% of the Indian household balance sheet. Gold holdings among Indian households at current market value is about 2.5 times the current equity stock holding of US$80 billion. While the share of gold in household savings declined during 2001–03 to 5%, we estimate that this has risen again back to 6.5% during the quarter ended March 2005. With its high rate of gold consumption, India accounts for 18% of the annual global gold demand, while its share of global GDP on nominal dollar GDP is only 1.6%. India’s share of global gold demand is about one and a half times that of the US, though its GDP is only one twentieth that of the US.
Opportunity Cost of Gold Investments Is HighInstead of investing its annual savings in gold, if
India were to invest this in more productive business assets, its annual GDP growth would be higher by about 0.3–0.4%. The cumulative GDP value lost by parking US$200 billion worth of savings over the years in this not so productive asset would be huge. With no domestic gold mining, the purchase of gold is also resulting in an inappropriate use of foreign exchange earnings. During the quarter ended March 2005, gold consumption (excluding gold used for jewelry exports) was 1.8% (annualized) of GDP and about 21% of the total non-oil imports.
Share of Financial Savings Has Declined Recently
Over the last 20 years, the share of financial savings has remained stagnant at an average of 50%. Indeed, the recent decline in real interest rates has only encouraged households to increase the allocation to physical savings (which includes gold, property and households investments in small businesses). The share of financial savings in the total has decreased to 47% in F2004 from 61% in F1997 as real deposit rates have fallen to -1.9% from 6.9% over the same period. Although, the official statistics for F2005 are not available, from preliminary figures for financial savings we believe that the share of financial savings is unlikely to have increased significantly. Over the last two years, the share of gold in household savings also appears to have risen again. Indeed, over the same period our approximate analysis based on the stake holdings trend for the top 200 companies (which account for 84% of the total market capitalization) and purchase of mutual funds indicate that over the last 24 months while Indian households’ investments in gold is rising, their allocation to equities has fallen, reflecting their risk aversion.
The Stalwart has suggested that India doesn't get the same economic recognition that China gets, and that this is probably unfair. Look at India and their gold sort as though you found a cash-rich public company. Yeah, they're not getting great returns on their assets now but the opportunity to unlock in the future value is certainly there