By Rakshith S. Ponnathpur (Intern) & Monami Dasgupta, Dvara Research
Investment in gold by Indian households is motivated by social, economic, and cultural factors. One out of every ten households buy gold annually or more frequently; usually in the form of jewellery, followed by coins and bars. An average Indian household allocates 11% of their wealth in gold bullion. Average monthly per capita expenditure in India on gold and jewellery is ₹494 in urban households and ₹233 in rural households, while for an average Indian family of four persons the total consumption demand would be 2.8 grams. Gold or gold backed products are used to mobilize savings, serves as protection against inflation, collateral for borrowing loans as well as an instrument for liquidity management by households facing cashflow volatility. The objective of this research brief is to explore gold as a financial instrument, particularly for low-income households in India. To understand this better we conducted a brief overview of the literature on the retail gold sector, households’ gold consumption behaviour and policies or schemes rolled out by the government in India to formalize the informal gold sector. We also generated empirical evidence by analysing the transaction behaviour of remote rural households into gold based micro-savings products using administrative data from Dvara SmartGold. Our analysis using administrative data helped us gain insights into participation and allocation in gold-based micro savings product by low-income households with a varied asset (physical and financial) and liability portfolios, different income and expenditure patterns and diverse demographic and occupational characteristics (household size, number of female dependents, occupation category).
To know more, please read our research brief on Savings in Gold by Low-income Households here.