India’s gold demand grew by 17 per cent CAGR during the last decade when India saw high growth rates, but so did other asset classes, many of which saw a significant jump in penetration since the reforms introduced in the early 1990’s. The fascinating thing about gold is that the growth came largely through jewellery channels, whereas the other asset classes grew with closer guidance from the organised financial sector.
Demand for gold was not blind passion, but illuminated economics as any portfolio with 10-20 per cent gold will tell!
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The phased approach to a relaxation of the curbs by the Indian government in the past year reflects a pragmatic approach and a fair understanding of the role gold plays in the economy at various levels. Gold policy thinking has expanded beyond just import policy and lending against gold. The pronouncements tacitly acknowledge that the eco system for gold — the second biggest in preferred savings after term deposits — has to be adopted by the formal finance sector and adapted to the needs of a modern society that will still love gold, but is a lot more exposed to newer asset classes.
The initiatives announced in the budget such as the gold monetisation scheme, Ashok Chakra coin and sovereign gold bond show new bold thinking. The inclusion of the Gems and Jewellery sector as part of the ‘Make in India’ programme shows confidence in the industry that has shown the ability to weather any storm domestically – can it now expand its wings and do an encore in the global arena?
However, a high tax on a dollar asset like gold, which is in demand by millions of consumers while looking to open up overseas investments for Indians does need consistent approach.
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Overall it would be fair to say that gold has received positive attention and a much desired long term focus. This government’s approach will be able to redefine India's relationship with gold by creating new reasons, new relevance and a new language to enable households to accumulate gold through new formats; to make gold a transparent and fungible asset class through reliable new channels and to guide the industry towards making India “Jeweller to the World”.
(The writer is Managing Director, India, World Gold Council)