India's gold rush is investment and tax avoidance as well as jewelry


India's Gold Rush: Tradition, a Booming Economy, and a Desire to Hide Income from the Taxman Are Leading to Record Sales

By Tarquin Hall
The Times, London
Sunday, December 16, 2007

When Indian housewife Meera Chopra feels the urge to indulge her addiction, she ventures -- sensible handbag dangling from the nook of one arm -- into the dark, crumbling heart of old Delhi.

"I could go to one of the malls that has come up near my house instead," she said, "but you can't trust these fancy new places. The stuff they sell is not always pure."

Chopra, like her mother before her, has always bought her gear from the same establishment in the Chandni Chowk area of the ancient capital.

The place lies down a dirty, narrow lane, crowded with bicycle rickshaws and impatient delivery-wallahs carrying huge bundles on their heads.

Hapless pedestrians must also contend with a minefield of pats left by wandering sacred cows. But at the far end of the lane stands the reward for the intrepid: a modest pair of doors that open into a veritable Aladdin's cave.

Here, inside the 217-year-old Shri Ram Hari Ram jewellers, all that glitters really is gold. Rows of glass cabinets showcase masses of bangles and jewel-encrusted rings. Sideboards sparkle with delicate, chandelier-like earrings, and spotlights illuminate extravagant Indian wedding necklaces, headpieces and ornate nose rings -- once the preserve of maharanis but today the birthright of every middle-class bride-to-be.

"For Indian women, owning a certain amount of gold is a must and if you are like me then you have lots," beams Chopra, 41, who, like most of her fellow countrywomen, is loath to reveal the exact value of the jewellery she keeps squirrelled away in her bedroom strongbox.

"When we marry, we're given lots of bangles and necklaces and such by our families, which we keep for the rest of our lives. Also, during our married lives, whenever we can put some extra cash aside, we buy gold to keep for our daughters' weddings."

Little wonder that India's astrologically auspicious marriage and festival season, which lasts from late September to early December, has long been a frantically busy period for the country's jewellery industry.

But in recent years, all previous sales records have been smashed. Rapid economic growth has given rise to what amounts to a gold rush.

According to the World Gold Council, demand for jewellery is up 38% in the last 12 months, even with the gold price at $789.50 an ounce. India is now the largest consumer of the precious metal in the world.

"Gold is at a 28-year high, but we have never seen it so busy," said Mohit Gupta, a fifth-generation member of the family that owns Shri Ram Hari Ram.

"Jewellery is a status symbol in India and it's traditional to give gold during festivals, at the birth of a baby, and, of course, at weddings. In Delhi these days, all the women are dripping in it," he said.

Indeed, on a recent Saturday afternoon during the height of the gold-buying season, jewellery shops across Delhi were jam-packed with discerning aunties and their young proteges. Many spent hours perusing the latest designs while being waited on by chai-wallahs serving small glasses of hot, milky tea and by jewellery shop assistants endowed with saintly patience.

In one of south Delhi's new malls, where the young female clientele swagger about in high heels and designer sunglasses as in Beverly Hills, Tarun Jain, owner of the exclusive Sil Gold jewellery boutique, said he often sold designer wedding rings for L20,000 or more.

"In the West, women tend to like inconspicuous jewellery they can wear to work every day," said Jain. "But in India, the bolder the better."

Despite their extravagant tastes, India's burgeoning urban middle class is only partly responsible for the phenomenal growth in the country’s appetite for gold.

Surprisingly perhaps, two-thirds of the 920 tonnes of gold sold in the past 12 months -- worth $19 billion (L9.4 billion) -- has been purchased outside the big cities, in India's villages and small towns. Economists say this suggests that some of the poorest Indians are now beginning to benefit from the country’s 9% economic growth, albeit it in a small way.

"Gold is the easiest form of investment and collateral in rural India," said Philip Olden, managing director of the World Gold Council. "The local village jeweller is to a degree the bank because there isn't the same level of financial services as elsewhere. Farmers will invest any profit from a good crop into gold a few dollars at a time over years and years."

Gold, along with property, also remains an attractive option for Indian businessmen seeking to hide undeclared profits from the taxman.

"Most businesses operate two sets of accounts -- one black, one white," said Arun Kumar, professor of economics at Delhi's Jawaharlal Nehru University. "Gold is an easy way to hide profit because you pay cash and put it in your safe and no one needs know."

Kumar believes that despite economic liberalisation and lower tax rates, the so-called "black" economy continues to thrive, driving vast sums of undeclared income into gold.

"India's black economy is nearly 50% of GDP," said Kumar, author of "The Black Economy in India." "The government likes to pretend that it's much, much lower, but that's because a nexus of politicians, businessmen, and bureaucrats controls it."

The Indian finance ministry is unable or unwilling to provide a figure for the size of the country's parallel economy, and government spokesmen downplay its significance.

But even if the black economy is only as large as 20% of GDP, the figure often quoted in the Indian media, that amounts to $80 billion a year and is more than the entire federal budget and over twice the country's annual exports.

Prime Minister Manmohan Singh's government has considered various amnesty schemes to persuade individuals to declare their "black" assets, although most experts agree that such proposals are unworkable and run the risk of legitimising corrupt practices.

The government is also keen to persuade Indian women to kick their gold habit. According to, private individuals in India own more than 14,000 tonnes of plain necklaces, rings, and bracelets, amounting to roughly 10% of the world’s entire above-ground gold stocks.

"In 2006 Indians spent more on gold than foreign companies invested in India," said Saumitra Chaudhuri, economic adviser with ICRA, an investment-information provider.

He points out that less than 2% of the population have invested in equities.

In March, India will establish its first exchange-traded gold fund, providing investors with the opportunity to earn more on the metal but denying them physical ownership.

Such schemes have proved popular in Europe and America. But many of the women questioned in the Shri Ram Hari Ram jewellery shop were lukewarm about such investment schemes.

"I could never sell my jewellery and put the money on the stock market," said Chopra. "You can't wear stocks and shares to a wedding."

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