Spend on expensive art works, gold all set to surge amid pent-up demand

Indians’ love for gold accentuated owing to a huge pent up demand after the second Covid wave. And, widening income distribution because of the lockdowns is likely to result in a huge jump in purchase of valuables in the current financial year. Valuables comprise gold, precious stones and expensive art works.

Indians are projected to spend 75 per cent more on valuables at Rs 2.95 trillion during FY22 even after adjusting for inflation, according to advance estimates (AE). This is not because of the low-base effect as people bought 2.4 per cent more valuables at Rs 1.67 trillion during the Covid first wave-hit FY21 when GDP contracted 7.3 per cent. This is against Rs 1.64 trillion in the previous year. This had resulted in a slight rise in the share of valuables in GDP to 1.2 per cent in FY21 from 1.1 per cent in the previous financial year.

However, the share would see a huge jump to two per cent in real GDP in the current financial year, according to the AE.
 
The same is the picture more or less about the share of valuables in GDP at current prices in these three years. This is a better indicator for gauging composition of GDP into different segments. This share is projected to rise to 1.9 per cent in the current financial year from 1.2 per cent in FY21 and 1 per cent in FY20.
 
Share of valuables in GDP, both at constant prices and current prices, would be the highest in the current financial year since 2013-14.

 
ICRA chief economist Aditi Nayar said the high valuables figure likely represents gold imports. “High gold imports largely represent the pent up wedding demand amid the disruption caused by the pandemic,” she said.
 
Experts say even as people spend less on food in marriages due to restrictions on guests amid Omicron, they are buying gold at a brisk pace.
 
Bank of Baroda chief economist Madan Sabnavis said there is a sharp rise in the import of gold this year. “There is an absence of alternatives — deposit rates are low and the future of real estate is uncertain. People are investing in stocks, gold and crypto. Gold is considered a safe haven. Also, pent up demand has surfaced in the post-Covid wave,” he said.
 
Gold imports rose 170.68 per cent at $33.29 billion in the first eight months of the current financial year against $12.30 billion in the corresponding period of the previous year.
 
Part of this could also be due to the low-base effect as gold imports declined 40 per cent during April-November (FY20), year-on-year. However, gold imports were also higher by 62 per cent till November of the current financial year over the year-ago period.
 
India Ratings chief economist Devendra Pant also attributed it to the widening income inequalities due to Covid-induced lockdowns.
 
“This is also because of the income distribution and how different strata of the population have been impacted in the last two years differently. People from the upper strata of the population are generating disproportionately more share of the value addition in the economy. This is quite evident from the way sales of SUVs and two wheelers are behaving,” he said.
 
Sales of two wheelers declined by 5.49 per cent at 9.1 million units, while that of SUVs rose by 72.21 per cent at 9,11,918 units during the first eight months of the current financial year, showed figures by SIAM and Jato Dynamics.
 
However, the share of valuables in GDP was higher in 2011-12 and 2012-13 compared to the projected figures for the current financial year.
 
For instance, their share in GDP — at current prices — stood at 2.9 per cent and 2.8 per cent in 2011-12 and 2012-13, respectively. Those were the years when huge gold imports played a critical role in disturbing India’s current account balance. The current account deficit (CAD) had widened to 4.2 per cent of GDP in FY12 and a record 4.8 per cent the next year.
 
Gold imports have been rising this year as well, but those are not likely to result in huge CAD. Economists peg the CAD at a little over one per cent of GDP in the current financial year.