In the year 2018, we purchased nearly 760 tonnes of gold–of which major portion was in the form of jewellery. This is World Gold Council data. If we include another 250 tonnes bought in the Middle East [mostly by Keralites] it comes to more than a 1000 tonnes bought by Indians alone. Most of it is imported since our own production is negligible. In short, India buys one-third of the world’s gold output.
At an average price of Rs 30,000 per 10 grams, domestic demand brings the sum up to Rs 2,28,000 crore. Central Statistical Office [CSO] data on savings show that approximately Rs 51,000 crore was invested in gold by households during 2016-17. We will reserve this reconciliation for another day–CSO may consider only bars and coins as investment and the rest as consumption. During 2017-18 the primary market in equities raised was about Rs 1,10,000 crore.
So there is an obvious hue and cry by “experts” and an assorted type of economists on the “unproductive” investment in gold by Indian women. Another set of experts argue that return on gold is attractive. This idea of return on gold in our context is only theoretical since households do not sell gold except in rare emergencies. Households buy gold and keep it aside as a major investment.
Let us understand why housewives prefer gold.
- For most poor housewives who are not familiar with banks or equity market and bond markets, gold is an asset that is easily understood.
- It serves as a form of insurance and pension fund if the husband passes away and children are rapacious.
- It is divisible—a bangle can be converted into many an ear stud.
- It is portable, unlike real estate.
- It is a commonly used collateral for most businesses in informal sector such as retail trade and small eateries.
- Financial Institutions provide working capital needs of say 50% of the economy and the remaining comes from relatives, caste members, chits, money lenders, etc. All these markets accept gold jewellery as collateral.
- If both the wrists of my flower vendor are adorned with bangles, it means to say the economy is doing well. If only one wrist is occupied, then downhill has begun, and no bangles mean recession has set in. It is the main item to mortgage for borrowings in the “unorganized” credit market. I call this my “Bangle Index” to understand the state of the economy. Unfortunately, most experts do not understand the collateral nature of gold.
- One should note that possession is ownership in the context of gold. No documents are required to prove it is yours.
- It is easy to bequeath, unlike house or equity shares. It is simply handed down from one generation to the next.
It is important to recognise that nearly 85% of Indians are either self-employed or contract laborers. Only 15 % are working in government and big private companies. The self-employed [construction contractors/ retail traders/one-truck owners/restaurant owners, alongwith plumbers/ carpenters/ painters/priests] have no social security for old age and no health coverage. Gold is an important asset for these people and usually, the women tend to be more worried about the future, providing for the children, etc. and look to save. It is no wonder that the household saving rate is the highest in India.
The so-called superstition pertaining to not removing the Mangal Sutra until the death of the husband is an insurance protection to the woman against rapacious relatives and children. It is assumed that the gold ornaments will work as social security for her in the event of an emergency or death of the head of the household. The yesteryear Bollywood blockbusters would invariably have a scene where the leading lady removes her bangles or chain to be pledged for the benefit of her ailing husband, reflecting the ground reality better than the views of experts.
Of course, periodically some unemployable political leader talks of using the gold in temples for filling up potholes in our cities, which will only serve as “extra income” for our contractors, councilors and corporation officials. The gold given to temples over several centuries is not to enrich municipal contractors and officials in 2019 but to be used for the daily and festival rituals. That leader fails to consider that if we brought out all the gold stored in temples, the excessive supply will crash the prices in global markets, consequentially making our households poorer.
As the largest buyer of this metal in the world, India should play an active role in the international market and leverage our position to shape policies pertaining to gold. Any large buyer of a commodity, say, oil or coffee or zinc or maize does so. There is a considerable disconnect between the government and the middle-class citizens. The socialist experts feel that the middle-class is naive to invest in unproductive assets. The globalizing metropolitan elites say that the middle-class is foolish in investing in gold since “experts like them” have defined it to be un-productive. The middle-class is sandwiched between Nehruvian Socialists and Modern Globalizers—neither of them understand the real India.
It is also interesting to know that there is no net estimate of gold available in India. When I was doing a study on savings habit with ING in 2006, we interviewed large number of professionals [lawyers/doctors/accountants/executives, etc.] to know if they were aware of the amount of gold their wife possesses. 99 per cent did not know. Some answered 40 grams, when the corrext answer was 400 grams. Will the Government of India ever know what the husbands don’t know? That is why it is called the Streedhan. The asset of women, and the Indian women are very smart, believe me.
The writer is a Former Professor at IIM Bangalore, and currently Cho S. Ramaswamy Chair Professor at Sastra University.
-By R Vaidyanathan
