India's gold rush. The effects of the rising gold demand on Indian economy

Seminar paper from the year 2013 in the subject Economics - Other, grade: 9.0, , course: BA hons Social Sciences, language: English, abstract: Gold, a name that has shone over centuries of human civilization is glittering today even more on account of global recession. Indians have an insatiable appetite for gold. Historically, the yellow metal has underpinned the financial security of individuals, families, kingdoms and the state. So, every bit of surplus savings from the family budget goes to buy gold. Added to this is the Indian women s fascination for gold jewellery.§India s domestic production of gold is very limited; the rising demand has to be sourced from outside the country. Moreover, Gold as a commodity on its own does not add much to the productive capacity of the economy. When one buys gold, it either is stored in lockers or gets converted into jewellery. In both the cases, money spent on purchasing gold gets blocked since gold is not a productive asset. There are certain qualities of gold that make it a desirable investment option.§Despite being an impoverished country with low per capita income, India tops the world in buying gold. India s exports have been declining for the last couple of years. With surging imports, the trade deficit and, therefore, the current account deficit are rising disturbingly. A high CAD impacts the value of currency which in turn makes imports expensive and adds to the fiscal deficit. During hard times, it is imprudent to divert the country s forex to buy gold. Gold India is the world s single largest gold bullion consumer. India owns more than 18,000 tonnes of above-ground gold stocks worth about $800bn.§But India's fetish for gold threatens to take the shine off its fast-paced economic growth. [...]§In this background, the present term paper will try to explore the effects of ever rising gold demand on the Indian economy, especially on current account deficit and measures adopted by government to balance it.