How does Gold Trading Affect the Indian Economy?

Indians have a penchant for gold- no one is a stranger to this fact. We like to buy gold as an investment, gifts, jewelry, and whatnot. But how does buying gold from foreign dealers impact the Indian economy?

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GDP and Gold Imports

Gold bought from foreign traders has a direct impact on the Current Account Deficit (CAD) of India, which is when the total value of the imports exceeds that of the exports. India being one of the largest importers of gold in the world the risk of GDP damage here is quite high.

Not much time ago, when UPA was the ruling government, gold imports went so high that the then Finance Minister, P. Chidambaram himself had to appeal to the Indian populace to avoid purchasing of gold as much as possible.

Stagnant Cashflow in Rural Regions

People living in tier-1, tier-2 cities know how to invest their money in modern instruments such as mutual funds, fixed deposits, etc. which is healthy for the economy. However, in a large number of rural regions, there are no or very few banks. Thus, the people living there use gold as their preferred investment option. However, this kind of investment takes out cash from the economy. In fact, it’s not uncommon for decades to pass by before this frozen money is liquidated.

All in all, purchasing gold as an investment is usually bad for every economy. Since Indians are at the top in this segment, we have all the more reason to consider the consequences of our habits on the country’s growth.