Though India’s gold imports have risen after Covid-related restrictions were gradually lifted across the country, the World Gold Council (WGC) fears the demand for gold in India, the world’s second-biggest consumer, may be more subdued than expected this year, following its prolonged battle with the pandemic.
A variety of other factors such as declining household savings, agriculture wages and government policy steps also pose a challenge to gold demand. An increase in the rate of import duties since 2012 have depressed demand for gold by 1.2 per cent per year. On the contrary, a rise in inflation and rainfall increases its demand significantly.
A report released Tuesday by the WGC reveals each one percentage point increased inflation, increases gold demand by 2.6 per cent and a 1 per cent increase in rainfall, compared to the long-run average, boosts gold demand by 0.2 per cent.
The report says while India is the second-largest consumer of the yellow metal, the per capita consumption in the country is low. But looking at the longer term, it says, the Indian gold market is influenced by both positive and negative factors.
On the upside, the economy is expected to benefit from several robust structural factors. First, rapid growth in the working age population over the next two decades will create a strong and sustained demographic dividend.
Second, continued urbanisation will drive and support economic expansion. Third, higher penetration of both the manufacturing and services sectors in rural areas will reduce their reliance on agriculture and deliver more stable incomes for millions of households. The WGC says rising income is one of the biggest drivers of the long-term demand for gold in India.
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