India has an ambivalent relationship with gold. For consumers, gold is a prized asset, cherished as both an adornment and an investment. For the government, gold is a major contributor to the current account deficit, a challenge that needs to be addressed. 

This report aims to show how gold can become an asset for the Indian economy, rather than a liability. Looking across the market, we show how gold can be put to work within the Indian economy: how it can increase employment, drive growth and boost gross domestic product (GDP). 

In order to provide a comprehensive analysis of the market, the World Gold Council commissioned Federation of Indian Chambers of Commerce and Industry (FICCI) who also engaged Bureau of Research on Industry & Economic Fundamentals (BRIEF) to conduct a widespread survey of Indian consumers and assessed policies adopted in other countries with similar issues to India. 

We have used this information to provide suggested policy measures that would allow India to reap the maximum benefit from its affinity with gold. 

The Survey Results

  • First, demand for gold remains strong and enduring, whatever the macro-economic, fiscal or political circumstances. An overwhelming majority of respondents said they would buy gold in good times and in bad. More than 75 per cent of respondents bought gold at least once in 2013 and more than half bought more gold in 2013 than the year before, despite government restrictions.
  • Second, it is clear that, contrary to widespread belief, Indian consumers would be prepared to use interest-bearing gold-savings products, if conditions were conducive. More than 60 per cent of respondents said they would consider depositing gold with a financial institution in return for interest and most said they would be happy to receive cash, branded coins or different gold from their initial deposit at maturity.
  • Further work undertaken by the World Gold Council, FICCI and BRIEF suggests that restrictive policy measures have not proven particularly beneficial to the Indian economy in the past. Customs seizures and market analysis indicate that the gold smuggled into India between 1968 and 1995 rose to more than 200 tonnes in certain years. 
  • However, when government policy was at its most liberal, between 1990 and 2007, illegal smuggling reduced, the gold price differential between the domestic and international market narrowed and the government earned revenue through import tariffs and domestic taxes on the gold industry.

Policy Proposals 

Gold has an enduring appeal to the Indian consumer, but India is not reaping the bene ts from this affinity. How can this change? Below, we suggest measures that could be adopted to allow gold to make a meaningful contribution to the Indian economy. 

  1. Drive the standardisation of gold so that buyers and sellers can have faith in both the quality and price of their products. Introduce guidelines for compulsory quality certification of all forms of gold to encourage accountability and foster an environment of trust. 
  2. Establish a Gold Exchange to ensure pricing standardisation, increase transparency and improve supply and demand analysis. 
  3. Establish a Gold Board to manage imports, encourage exports and drive development of necessary infrastructure. 
  4. Allow Indian banks to use gold as part of their liquidity reserves. This would incentivise them to introduce gold-based savings products. 
  5. Revitalise Gold Deposit Schemes. It is estimated that 22,000 tonnes of gold2 are currently held in Indian households. If a fraction of this gold were deposited with banks, this would bring gold directly into the economy – benefitting the financial sector, benefitting the gold jewellery industry and reducing import levels. 
  6. Encourage the development of other gold-backed investment and savings products.
  7. Create a more active marketing strategy for Indian handcrafted jewellery. This could boost exports and highlight India’s expertise in this highly-valued sector. The Swiss watch industry could provide useful lessons in this regard.