The Indian Love for Gold

By Mayank Goel

Edited by Liz Maria Kuriakose, Associate Editor, The Indian Economist

With a booming population in a country like India, it is easy for an economist to postulate that the reason for persistent stagflation is the ever-growing labor force; which does not find employment due to a resource crunch, not to mention the demand against these resources causes high inflation and results in a lack of employment opportunities.  Stagflation would mean a state of high inflation and high unemployment, which under general conditions are supposed to be inversely related (simply putting it, you employ more, you pay more, higher prices, high inflation, that’s how it should go). The above, even stepping back from the textbook jargon, would seem like a standard argument that an economist would give for a ‘third world’ state of affairs.

But have we ever wondered, comparing ourselves with other economies, that our problem might be exacerbated by cultural biases that infect the masses? Well, we have a huge ‘unrecorded’ economy running on black money, as Indians are still skeptic people and like to hold cash. Nevertheless such cash is still circulated quite a bit, put to some productive use and not all is lost. But a peculiar problem lies with another monetary asset that Indians for countless generations have preferred and still, quite ardently, prefer to hold, and that is gold. Let us see how gold is an important focal point of Indian culture and what its probable impact on this idea of stagflation is. In more general terms, is it possible that the love for this lustrous metal makes us economically tardy as a nation?

Gold is something that is synonymous with wealth in India. India is the world’s largest consumer of gold. On occasions such as marriages, cultural or religious festivals, buying, selling and gifting gold are next to a ritual task that households enact. Our religious sentiments, their related texts and their evolution over time have gold playing a major role. We pray to god for gold, we make offerings of gold coins and bullions at temples and even dress our idols in gold. Ornaments and clothing style, both traditional and modern have a major element of gold. The wealth that people inherit from their forefathers in many Indian households is mostly in the form of land and gold. So, we can easily say that Indians invest a lot in gold.

But the nature of gold is such that it is valued with time. The only benefit it creates is that it can be sold at a higher price later. It adds no functional benefit or utility in the economy i.e. if gold is simply kept safe in your cupboard, you cannot lend it to another person to invest and create some goods and services to increase output in the economy. Now, inflation happens when the output is not enough to meet the demand in the economy. And that is exactly what happens when Indians put their savings in gold and do not lend them to borrowers for investment. This retards the output growth and no new labor is easily employed. Unemployment stays high as ever and Indian policy makers find themselves in the same catch-22 situation, namely, stagflation. The bottom line is that Indians need to reduce the aurophilia and put the money where it is needed the most: in the development of the economy.

So we see, when we put aside the traditional economic eye-lens for a second and look at the cultural society from a behavioral point of view, we realize that the economic and moreover material condition of our country will not become better simply via dynamic monetary and fiscal policies but a change of mental attitude that has been indefinitely passed on from generation to generation.

Mayank Goel is a second year student at SRCC pursuing B.Com(H). But his interests stretch way off from his college-course combination. Coming from a family of artists and journalists, he has been an amateur drummer for a long period of time (long enough for someone to move on from amateur). He has a keen interest in subjects like economics, behavioral economics and even philosophy and psychology. Although open to opinions, he can spend hours on frivolous talk just to win an argument.