India’s gold market is driven primarily by the consumption and fabrication of the yellow metal. Both have a significant impact in terms of economic value add, employment, contribution to foreign exchange earnings, and the trade balance. A report commissioned by the World Gold Council from PricewaterhouseCoopers estimated that gold made a direct contribution of more than $30 billion to the Indian economy.
The role and the impact of gold are reflected by the gems and jewellery industry which contributes around 7 percent of the country’s gross domestic product (GDP) and 15.71 percent to India’s total merchandise exports. The gems and jewellery sector in India is one of the largest in the world and contributes to about 29 percent of the global consumption. In FY 2014-15, the sector constituted 13.30 percent of the country’s total merchandise exports.
Here is a look at the different ways the gold contributes to the Indian economy.
Gold mining
Gold mining can provide significant sustainable socio-economic development to India. Furthermore, mining helps bring infrastructure investment to a region, and helps initiate and support associated service industries, all of which often persist long beyond the working life of the mine. However, gold mining industry has largely been insignificant in the country.
About 45,000 ounces were mined in 2015 and even after adding gold produced as a by-product of copper mining on the subcontinent, India’s gold output is little more than 1.5 tonnes. . At a country level, China was the largest producer in the world in 2016 (about 463.7 tonne) and accounted for around 14 per cent of total global production.
Gold Refining
The most significant change has been in India’s refining capacity. India’s long-established refining sector has seen a sharp rise in new capacity in recent years. The organised refining landscape has grown sharply from a mere three to four refineries in 2013 to 30 refineries in 2015, including one which is LBMA-accredited and MMTC-PAMP (a joint venture between public sector MMTC and Switzerland’s PAMP SA).
India’s total refining capacity is now above 1,450 tonnes, significantly more than the average annual gold imports over the past five years. But much of the additional capacity remains under-utilised, largely because of the limited availability of recycled material.
Gold Manufacturing
At present 5-10 percent of India’s gold manufacturing sector could be deemed as being “organised” large-scale facilities, while 10 years ago these would have barely existed. Nearly 65 percent of jewellery manufactured in India is handmade and the vast majority of the sector is still characterised by small workshops, each typically employing two to four goldsmiths.
Impact on the current account deficit
Although oil imports are primarily responsible for the high current account deficit (CAD) in the country, India’s huge gold imports is also partially responsible for it since the second largest part of the import bill is gold. CAD occurs when a country’s total imports and transfers are higher than its total exports.
Exports
According to India Brand Equity Foundation (IBEF) , a Trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India , India is one of the largest exporters of gems and jewellery and the industry is considered to play a vital role in the economy as it contributes a major chunk to the total foreign reserves of the country. UAE, US, Russia, Singapore, Hong Kong, Latin America, and China are the biggest importers of Indian jewellery.
Indian jewellery exports have grown over the past decade to reach 160 countries. India’s gems and jewellery exports stood at $24.89 billion in April-December 2017. During the same period, exports of cut and polished diamonds stood at $17.2 billion, thereby contributing about 69 percent of the total gems and jewellery exports in value terms. Exports of gold coins and medallions stood at $1,736.02 million and silver jewellery export stood at $3,114.85 million during April-December 2017.
Growth of the gold loan industry
Pledging gold as collateral has been an ever-present feature of India’s gold market. There are two types of gold loan providers – formal (banks and non-banking finance companies) and informal (money lenders and pawnbrokers). In 2014, after a period of lobbying, gold loan companies succeeded in persuading the government to restore the 75 percent LTV (loan-to-value) limit and business has since recovered.
