Syllabus: GS3/ Economy
Context
- Gold investments in India surged by 60% in 2024, reaching $18 billion (approx Rs 1.5 lakh crore), compared to 2023, according to the World Gold Council (WGC) report.
Key highlights of the report
- India’s gold investment demand stood at 239 tonnes in 2024, the highest level since 2013.
- This represents a 29% rise from the 185 tonnes recorded in 2023.
- Global gold demand also witnessed an increase of 25%, compared to 945.5 tonnes in 2023.
- The demand is expected to expand further into gold exchange-traded funds (ETFs) and mutual funds.
| Key facts related to Gold – Gold accounts for over 5% of India’s total imports. – Reserves in India: Bihar (44%) followed by Rajasthan (25%), Karnataka (21%), West Bengal (3%), Andhra Pradesh (3% ), and Jharkhand (2%). – Reserves in the world: United States of America, Germany, Italy, and France. |
Reasons Behind the Surge
- Steady Rise in Gold Prices: The primary factor driving this surge is the consistent increase in gold prices throughout the year.
- Investors turned to gold as a hedge against inflation and economic volatility.
- Cultural Demand: Traditional preferences for gold during auspicious occasions like weddings led to higher retail demand and significantly boosted gold purchases.
- Urban Buying Trends: Metropolitan cities experienced increased buying activity.
- E-commerce platforms offering rapid delivery of small gold investment bars and coins facilitated ease of investment.
- Weaker Performance of Other Asset Classes: The domestic stock markets recorded average returns, prompting investors to shift towards gold.
Implications for the Indian Economy
- Current Account Deficit (CAD): Higher gold imports can widen India’s CAD, affecting foreign exchange reserves.
- Higher Inflationary Pressures: A surge in gold demand drives up its price, leading to inflationary pressures in the economy.
- Financial Market Disruptions: A shift of investment towards gold can lead to reduced liquidity in equity markets, affecting stock market performance.
Way Ahead
- Gold Monetization Schemes: Encouraging gold deposits in banks to reduce import dependence.
- Strengthening Gold ETFs and Mutual Funds: Providing tax incentives for digital gold investments.
- E-Gold Infrastructure: Expanding the accessibility of digital gold investments through fintech platforms.
| World Gold Council (WGC) – WGC is an international trade association for the gold industry formed in 1987 by some of the world’s most forward-thinking mining companies. – Governance: The World Gold Council is governed by the Board of Directors, composed of member company representatives (Chairperson or Chief Executive Officer) and the World Gold Council’s Chief Executive Officer. – Members: The World Gold Council’s 32 Members. – It is headquartered in London and has offices in India, China, Singapore, the UAE and the United States. |
Source: DDNews
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