Life in The Golden Era

Rajesh Shukla    March 30, 2024

OPINION I The Economic Times

If there is one product that has the unique distinction of being a consumer durable, savings instrument and a form of insurance all rolled into one, it is the yellow metal that Indians so love - gold. Every household in India has some amount of gold in its possession, right from those at the bottom-most rung of the income ladder to the super-rich. However, how this item is being consumed by different household segments is changing. Here are some of the key elements of gold consumption in India today.

Over 87% of households are gold owners and one in two households has purchased gold during the last five years. Rural consumers are significant users of gold with 63% ownership.

Gold and gold-related products investors in 2020-21 are to be found among 7% of Destitute families (those earning less than Rs 1.25 lakh annually at 2021 prices), 16% of Aspirer (annual income between Rs 1.25-5 lakh), 23% of Middle Class (annual income of between Rs 5 lakh and Rs 30 lakh) and 33% of Rich households (those earning more than Rs 30 lakh annually). There are however huge differences in the amount invested in gold and gold-related products held by these groups of households. For instance, while the ticket size is Rs 5,000 for the Destitute, it’s Rs 16,000 for Aspirer, Rs 59,000 for the Middle Class, and Rs 181,000 for Rich households.

While per capita consumption of gold is highest among the rich, gold consumption is largely a middle-class phenomenon. The majority of gold buyers across the years are concentrated among households with annual incomes in the range of Rs 3 to 15 lakh.

An interesting aspect of gold ownership compared to banking account ownership is that while the bottom of the pyramid households put in roughly an equivalent amount of their money in both these assets, the middle and rich-income households tend to invest bigger chunks of their money in banking instruments and life insurance than gold.

A significant proportion of households across all income groups still purchase gold on the occasion of family weddings. However, a larger proportion are now buying gold during other social occasions. Some of the reasons for gold purchase include gifting, buying of gold during festivals such as Dhanteras and Diwali, and it is also bought as offerings for worship.

With growing incomes, households are increasingly buying gold for personal use for its aesthetic value as well as for enhancing their social status. For a large segment of the middle class, gold buying is no longer just about savings but also about discretionary personal consumption. Increasingly, consumers are reporting that they buy gold “for no specific reason” or for “investment purposes”.

The trend toward gold investment is also picking up among urban-income households. Digital gold and gold bonds, for instance, are becoming more popular with earning youth and female members of households.

For poor households, gold has always been an insurance against financial crises. While only 4% of the poorest households have reported that they have mortgaged their gold for loans,13% of the richest households have availed of gold loans. For the lowest-income households, financial and medical emergencies are the major reasons for availing loans against gold. Clearly, then, in the absence of adequate social security for the poor, gold holdings act as a form of insurance even today.

The main reason for not buying gold among the lower-income households is the lack of adequate income. Most of the households that feel buying gold is not “attractive enough” belong to the top two income categories and cite reasons such as interest/returns being too low or feeling that it is a risky option. Other reasons for not investing in gold include lack of liquidity, dependence on pension, lack of knowledge about gold savings schemes, etc.

Given the significance of gold in Indian homes across all socio-economic profiles, it has emerged as an inclusive savings and investment tool. An emphasis on educating households about the ease of getting loans against gold would help in growing gold consumption among lower-income households. For middle and higher-income groups, marketers could focus on the aesthetic value and personal consumption aspect of gold. Clearly, the age-old saying “all that glitters is gold” still holds true for all Indian households.

Massive difference in where India saves/invest.

Average ticket size (Rs. per saving household, 2020-21)

Saving/investment tools

Destitute

Aspirers

Middle class

Rich

Banking instruments

4,000

18,000

85,000

3,72,000

Capital market

4,000

13,000

43,000

3,20,000

Life Insurance

2,000

8,000

30,000

97,000

Gold & Jewellery

5,000

16,000

59,000

1,81,000

 

Source: PRICE’s ICE 360 Survey (2021)