Gold Demand In India Up 6% In '96

The demand for gold in India peaked to more than 500 tonnes last year, representing a six per cent growth over 1995.

The gold demand in India is increasingly becoming a factor in the Indian economy because of the potential it holds for providing capital for investment purposes. India is among the poor countries of the world but records the highest demand for gold.

Speakers at a meeting held in London on the Indian economy said that India is sitting on a gold mine that could be turned into investment.

Reserve Bank of India deputy governor Y Venugopal Reddy had announced the introduction of gold-backed instruments for investment purposes at the gold economic conference held in Delhi last November. The Indian government is increasingly looking for ways to tap the vast privately held gold reserves for investment.

The demand for gold in India rose by six per cent over the previous high in 1995 to 508 tonnes last year, the World Gold Council reported. Demand buoyancy in the latter part of the year reflected in part the improved political and economic environment, with a stable government and tighter money policy, the Council said in its report.

There were signs that gold buying in India picked up particularly strongly in November and December last year. Indian consumers are becoming more demanding in terms of product, the council said.

Branded high-carat jewellery in modern designs, introduced into the Indian market during the year is growing in popularity, particularly in urban areas, it said. Indians can now buy this type of jewellery in the domestic market, rather than having to buy it abroad.

Non-resident Indians have become the main supply source to the Indian market, the council said.

Imports by NRIs totalled 228 tonnes in 1995, accounting for 48 per cent of the total demand, the report said.

Up to five kg of gold import was allowed to individual NRIs in 1992. Last December the ministry of finance raised the limit to 10 kg every six months. With 10 kg of gold representing a readily saleable lot in the local markets, there have been reports that travellers are both aware of the change and taking advantage of it, the council said.

The move, effective from the beginning of this year, is aimed at curbing smuggling, shoring up gold reserves in the country and bringing in more revenue. One result is that the local gold price premium over the international price has fallen from around 17 per cent to 15 per cent since the beginning of 1997, so providing a boost to consumer demand, the council said.

A period of political and economic uncertainty could release some of this gold wealth into investment into the economy, economists who study India said at the meeting.

Heavy gold buying is more often an indication of nervousness in the face of political and economic uncertainty.

Government efforts to tap some of the gold reserves for investment have not brought any significant results yet. This is primarily due to cultural dispositions, an Indian official said. We need a fair period of stability for this reserve to begin to open up, he added.

But the buying of gold in India was a sign that private reserves of prosperity are building up, the official said. The new measures this year are expected to increase the flow considerably.

The 1992 measures were not enough. The World Gold Council report says unofficial gold flows continued in order to meet burgeoning demand and, given the restrictive climate, debate on gold in official circles seemed unwelcome until now.

The government has taken several other steps to deregulate the gold market to help in its plans for developing the economy. Some of these measures are a National Gold Policy and greater transparency in trading. Reports speak of the possibility of commercial banks being allowed to participate in gold trading.