Not Just a Luxury; Even the Poor in India Buy Gold
While you may think of gold as a luxury item, many Indians view it as a necessity. In the Asian nation, buying gold is not just for the rich. In fact, a recent survey shows that possessing the yellow metal is a universal phenomenon across all income classes in India.
The yellow metal is interwoven into the country’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system. This explains why even the poor buy gold in India.
According to the ICE 360 survey, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.
If anything, these numbers likely understate gold ownership – especially among the poor. An official involved in the survey who did not want to be identified told LiveMint that survey respondents are often hesitant to admit to purchasing gold. This comes as no surprise considering gold is a major part of India’s vast underground economy.
Many analysts think gold will be pushed even deeper underground with the implementation of a new tax. On July 1, the Goods and Services Tax (GST) on gold jumped to 3%, more than doubling from 1.2%. According to a Reuters report, this won’t likely dull the country’s appetite for gold, but it will push more of it into the darkness of the underground economy.
A hike in taxes on gold sales in India could stoke under-the-counter buying and drive up appetite for precious metal smuggled into the country, where millions of people store big chunks of their wealth in bullion and jewelry.“
Some government officials wanted a much higher tax on gold. Chief economic adviser to the finance ministry Arvind Subramanian pushed for an 18% tax to bring gold in line with other luxury items. But for many poor Indians, the metal is not a luxury. It plays a vital role in their economic well-being. As the LiveMint report highlighted, the gold serves as an important insurance policy for many Indians, giving them the option to borrow against the metal during hard times.
The poorer income classes take gold loans mostly for medical emergencies or financial crises. As the chart below shows, the proportion of households availing gold loans because of such reasons is much higher among the poorer four deciles (bottom 40% of the income distribution) than among the richer income classes. This suggests that in the absence of adequate insurance or financial savings, gold holdings work as insurance for the poor, even in 21st century India. And given a chance, most of them would like to have more of such insurance, the data shows.”
It’s telling that the poorest people in a relatively poor country still manage to buy gold. It goes to show anybody can own gold if they simply make it a priority.
Basic economics aren’t any different in India than they are in the US or any other country. Gold is still money. It historically serves as a hedge against inflation and a safe-haven in times of economic distress. Many Americans understand this, but they feel like they just can’t afford to invest in gold. But if a poor Indian farmer can find a way to buy gold, why can’t we?
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