Why are Indians obsessed with gold?
Unveiling India's fascinating relationship with Gold ⭐
Not too long ago, back in my hometown, an unexpected visit from some relatives turned a quiet Sunday into a family gathering. They were searching for a suitable groom for their daughter and had come to my father for advice and any potential matches. During the chat, a peculiar detail emerged: the bride's father had a 'gold plan' based on the future groom's qualifications.
Here's how it worked. If the groom were a doctor, he'd receive a dowry of 100 sovereign(tola) of gold. Engineers were worth 50 sovereign , and arts or commerce graduates earned a modest 25 sovereign. This left me wondering about the rationale. Was it because medical education is costly? Or because doctors have higher earning potential?
I thought only bank lends money to people who don't need it, but it looks like Indian parents are no different. The conversation highlights the role of gold in Indian families and their social status.
(Please keep in mind that the statements in this newsletter are based on existing reports and my personal observations of individuals primarily from Southern India. Therefore, consider this as an opinion piece and take it with a grain of salt.)
I've always been intrigued by the role gold plays in the daily life of Indians. Gold is intrinsic to Indian culture, closely tied to religious beliefs, tradition and festivals. India stands as the second most prominent global consumer of gold, surpassed solely by China. Both nations significantly outpace their counterparts when it comes to gold consumption.
What is this fascination with gold?
Gold is a super app. It serves as the all-in-one solution for investments and savings, functioning as a hedge against inflation, a valuable asset during cash shortages, and a symbol of social status when adorned at family gatherings and events. In India, a notable proportion of the gold kept in households is under the ownership of women. This practice predominantly arises from the transfer of generational wealth to the woman during her wedding, where the gold becomes her exclusive property and serves as a vital source of financial security.
Who is buying this gold?
In India, bridal jewellery is the most popular type of gold jewellery, followed by daily wear and fashion jewellery.
Gold buying behaviour varies significantly among different states. South India leads in the consumption of gold jewellery in the country, accounting for 40% of the total demand. This dominance has remained consistent over the past few decades. The high demand in the southern region is due to the preference for simple gold jewellery, higher per capita incomes, and lower poverty levels. Kerala benefits from financial resources from the Gulf, leading to higher incomes, while Tamil Nadu is known as India's hub for IT and manufacturing.
North India holds a 20% market share, while West India has a 25% market share for gold jewellery in India. In contrast, Eastern India has a smaller market share of 15%. The markets in the North and West are diverse, with a preference for various carat items like 23, 22, 18, and 14-carat gold, while South India prefers 22-carat gold.
The middle class's obsession with gold
The IGPC-IIMA household survey found that in 2020, around 49% of gold demand in India came from consumers with annual incomes ranging from Rs. 2L to Rs. 10L. On the other hand, consumers with incomes below Rs. 2L accounted for 24% of the gold demand.
What drives the gold purchase?
In India, weddings, religious festivals, and agriculture drive the demand for gold. Buying gold is considered highly auspicious during the festivals of Diwali and Akshaya Tritiya. Diwali's first day, known as Dhanteras, usually falls in October or November, while Akshaya Tritiya is observed between late April and early May.
While urbanization is increasing in many parts of India, 65% of the population still resides in rural areas, making agriculture a major factor in driving gold demand. In rural communities, gold demand tends to rise after the harvest season, which occurs from September to November for the Kharif crops. This period accounts for approximately 70% of India's agricultural production.
The demand for gold is concentrated in two main periods due to the combination of wedding seasons, harvests, and festivals: April to June and September to January.
When does it become a social status?
Gold holds social significance as a symbol of status, often displayed and admired by others. While men may showcase their wealth through luxurious cars and homes, women typically express their status through carefully chosen jewellery worn at family gatherings. An episode of the Tamil debate show "Tamizha Tamizha" featured a discussion between women who adore gold jewellery and those who aren't fond of it. The host posed an intriguing question about how to strike up a conversation with someone about their jewellery. One participant shared her strategy, which involved asking if they are from the bride's or groom's side, discussing their saree choice, and then inquiring about their jewellery's design, price, weight, and purchase details. It almost seemed like an SOP to initiate conversation around gold with women.
However, there is a downside to this focus on gold. Women who consciously choose not to wear gold are sometimes ridiculed at weddings. In the same show, a lady expressed her disappointment at how not wearing gold is seen as a sign of poverty. She shared an incident where a relative questioned whether her husband had pawned all the jewellery her father gave her during their wedding, as she did not wear any.
This also reminds me of an incident from my personal life when I recommended my wife invest in NIFTY 50 instead of buying gold jewellery. (PS: Don't do that)
How can the gold buying patterns changed over a period of time?
The younger generation has a different preference when it comes to buying gold jewellery compared to the previous generation. Instead of simply adorning themselves, they seek unique jewellery collections that are not commonly purchased by others. This shift in preference has led buyers to conduct more research and make inquiries before making a purchase. The current generation also prefers lightweight jewellery for daily use and modern designs that complement Western outfits. Since heavy jewellery is usually paired with sarees, which are now reserved for special occasions, there is a growing demand for lightweight jewellery suitable for daily wear. As a result, manufacturers are focusing more on creating lightweight designs.
I recently had a conversation with my cousin, who owns a gold jewellery business, and they mentioned that many brides and grooms return after a few months of their wedding to exchange their wedding jewellery for new designs. This is because the jewellery given during the wedding was chosen by their parents, and they did not have a say in it. It's important to note that additional charges for wastage and labour can be significant every time jewellery is exchanged.
On the other hand, not all younger individuals find gold jewellery appealing as a form of investment or ornament. The likeability of gold has decreased among a certain segment of the younger generation. In the same show, women who disliked gold jewellery expressed their opinion about alternative ways to invest their money rather than buying gold. They prefer to invest in travel, experiences, and shopping for apparel and beauty products.
The downfalls of gold obsession
The saying "All that glitters is not gold" holds true in this situation. The excessive obsession with gold can have negatve effects on relationships and financial management within households. In the debate show, a young girl wanted her mother to support her entrepreneurial dream by selling some of the accumulated wedding jewellery. However, her request was denied because her parents believed that entrepreneurship is uncertain, and they didn't want to risk losing the jewellery set aside for her future wedding. The girl shared that her parents' obsession with saving gold, at the expense of enjoying life, contributed to her growing dislike for gold jewellery.
In my hometown, I observed that some of my female friends had specific demands for jewellery and luxury items as dowry for their weddings. This is because they were conditioned from childhood to believe that they would eventually leave their family home, and they viewed it as their final share of wealth from their parents. This becomes even more significant if there are siblings in the household. Although Indian law states that children have equal rights to their parents' belongings, many women hesitate to engage in legal battles or involve their siblings in court proceedings for fear of damaging relationships.
It's a web of intricacies; if you try to fix one node, you will complicate others.
Conclusion
Back in 2015, when I was working at Rupeek, an online gold loan lending startup, we had a program that allowed customers to transfer their existing gold loans from other lenders like Muthoot or Manappuram to Rupeek at a lower interest rate. This helped customers save money on their interest payments. As part of the process, a representative from Rupeek would visit the customer's current gold loan provider's branch, release the gold, and bring it to Rupeek.
I had the opportunity to be one of those representatives for a transfer. I accompanied an elderly man to release his gold so that he could repledge it with Rupeek. When the old man saw his gold, he was overcome with emotion and almost had tears in his eyes. He mentioned that the gold had been a family asset passed down through generations, and he had pawned it for his daughter's wedding. He had lost hope of recovering it, but now, with the lower interest rates, he felt renewed hope. This moment became a deeply memorable experience for me, as it made me realize that looking beyond numbers can reveal heartwarming stories and narratives in the world of fintech.
While India is a diverse country with various traditions and languages, certain emotions unite its people, and gold is one of them. A mother in Delhi might affectionately call her daughter "Sone ki chaand," while a mother in Tamil Nadu would call her daughter "Chokkathangam".
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