Indian households may have accumulated up to 25,000 tonnes of gold, thereby retaining the tag of the world’s largest holders of the metal, according to the World Gold Council.
“We conducted a study two years ago and found the household stocks at around 23,000-24,000 tonnes. Now, the stocks may have touched 24,000-25,000 tonnes,” Somasundaram PR, managing director (India) of the London-headquartered WGC said.
At current international price, the value of the holdings (25,000 tonne) would be as much as $1,135 billion, or equivalent of more than 40% of India’s nominal GDP in FY19.
Factoring in the central bank’s reserves (608.8 tonne) and an import duty of 10%, the domestic value of the gold stocks at most of the known sources in the world’s second-largest consumer will be even higher. Despite subdued demand in recent years, gold holdings have accumulated over the decades, thanks to the traditional penchant for the precious metal.
WGC predicts 2019 Indian demand for gold at 750-850 tonnes, against 760 tonnes in 2018. But that trails a 7% rise globally in the same period. While gold demand has recovered from a seven-year low of 666 tonne in 2016 courtesy demonetisation, it is still far from the 963 tonnes posted in 2010.
Jewellery is reportedly likely to be main driver of Indian demand but the consumption of bars and coins is expected to be higher in 2019 than in the previous year. Although the government has experimented with multiple ways to reduce the domestic demand for physical gold, be it ETFs, SGBs, gold mining funds, gold fund of funds (FoF) or digital gold, the preference for physical gold does not wane.
Even its gold monetisation scheme, designed for those who have gold lying in lockers and cupboards, has failed to really take off. This is despite the interest rates in the range of 0.5-2.5% that one can earn, which is exempt from capital gains tax. The capital gains on value appreciation are also exempt from wealth tax and income tax.
The total mop-up through all the above-mentioned schemes – introduced as part of the government’s broader efforts to curb non-essential imports and thereby contain trade deficits – reportedly represents a meagre 2% of the country’s annual consumption. There were only 12 gold ETF schemes as of April 2019 with the total number of investors being 3,19,863. Moreover, the total AUM of gold ETFs has fallen by 60% between 2013 and 2019.