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Legacy Of The Indian Gold Market- From Physical-buying To Digi-buying

For the past few years, India has been accustomed to the idea of buying standard certified gold coins from trusted online sources.

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For centuries together, India has been a prosperous country. Be it in terms of cultural diversity or valuable metal resources, India has always been a frontrunner. In this journey, Gold has always been an integral part in making India what it is today. Millions of people across India, from large cities to smaller villages buy gold for themselves or their families throughout the year on various occasions like Akshaya Tritiya, Gudi Padwa, Diwali, weddings, birthdays, etc.

Gold has always been intertwined with the way of living in India. It is deeply rooted in the culture and is a part of almost every ceremony in the country. The gold buying behavior is majorly driven by tradition, festivals, weddings and other family occasions. However, over the time there is change in the pattern. From buying gold only on occasion as a present, today we have reached a stage where buying gold has become an investment option.  People today buy gold when the market scenario is favorable and they have saved up enough money to invest. 

The demand of gold has been fluctuating for the past few years. There are various factors that drive the demand of this precious metal like: Income, gold price, inflation, tax policies, etc. Over the years the country has undergone significant transformations and so has this industry. Along with reformations like 80:20 rule, Demonetization, GST etc. there are various other factors that has helped the industry evolve to the stage that it is today.

India for the longest time has been one of the fastest growing economy which has led to a shift in the economic division of millions of people. In 2015 India was one was the fastest growing GDP in the world with 7.3%.  This indicates that the increase in per capita income is directly proportionate to the amount saved. The definition of lower class, middle class and upper class has evolved over the period of time.  With the increase of per capita income of millions of Indians, the investment ratio in the gold industry too has scaled high. It is estimated that in the next 10-12 years India would have the largest middle-class bracket in the world and this in return will lead to increase in the gold consumption.  Also, geographically if we see, the consumption of gold is much higher in the rural areas compared to the urban population due to the strong traditional believes prevailing in these regions.

Another major factor that affected the gold industry is the import policies. In 2013 the government revised the gold import restriction starting from the import duties to other complex import and export policies. Gold being the second largest part of the import bill was one of the most affected resource. Duties on gold import was steadily increased from 2% to 10% between January 2012 to August 2013. Later the government also introduced the 80:20 rule where those importing fine gold had to export 20% of their imports in the form of jewelry. This brought significant level of transparency to the industry and lead to survival of only the most genuine players in the market.

With these socio-economic factors another factor that contributed to the transformation of the gold industry was inflation.  Inflation has been prevalent in India. Industrial Expansion and rise in the prices of food product has caused variability in the economy. This resulted in Indians turning towards gold to protect their wealth.

With respect to the jewelry market, the manufacturing unit has been fragmented. However, this is changing. Even with India being the top jewllery fabricator in the world, its manufacturing facilities are largely unorganized. 60-65% of the jewellery manufactured are handmade where small workshops comprising of 2-4 goldsmiths work in an unorganized manner. Encouragingly, the policy approach seems to be improving. In November 2014 the 80:20 rule was repealed. And in the 2015 Union Budget a policy framework – including the gold monetization scheme and Indian gold coin – was established to support India’s gold industry.

India is one of the largest gold jewellery exporters in the world, with around half delivered to India’s largest jewellery export destination, the UAE. The government has increasingly lent its support to the export industry over recent years. Looking ahead, vocational opportunities in the gems and jewellery sector are set to grow noticeably, with local trade bodies targeting employment growth of 0.7mn–1.5mn by 2020, many of which will be in the import/export sector.

From the investment angle, India is one of the world’s largest coin and bar investment market. At a macro level, income and inflation are key drivers of demand. But how consumers perceive gold also plays an important role. For investors today, bars and coins are a safe investment option and rank alongside deposit accounts as a preferred savings vehicle. Gold bars and coins help families accumulate gold for future weddings. Small denomination bars and coins allow households to gradually build up their gold investment to be exchanged for gold jewellery as an important occasion approaches. This is known as a Systematic Investment Plan in gold (SIPs). Some consumers invest in SIPs run by jewellers, whereas others start their own SIP. The popularity of SIPs grew as the gold price increased between 2000 and 2012. Urbanization has played a role too. According to the Proprietary consumer research conducted in 2016 indicated that consumers in urban India are more inclined to invest in bars and coins than those in lower-tier cities and rural areas, who have a greater preference for gold jewellery. Another way of accumulating gold is through EMI procedure. Through this it is now flexible to buy gold for every individual in the country. Thus, making investment opportunity available for people of every class and region.

A silent revolution is brewing in India’s $34 billion gold industry. Traditionally a brick-and-mortar sector that thrived on generations going to the family jeweler, is now moving towards convenience and trust in digital bullion investments. Today, , the Indians have various digital gold buying and investment options by various brands like Paytm and, Augmont Tapzo, etc.

For the past few years, India has been accustomed to the idea of buying standard certified gold coins from trusted online sources. Brands like Paytm and Augmont and Tapzo have secured the trust of the consumers who feared to buy anything online, let alone gold. Over the years, new brands have mushroomed and digital gold buying incorporated investment options such as gold on SIP. Initially, people could buy gold only on ecommerce sites but lately, we even have dedicated apps that only cater to the bullion market.  And now, the next phase of digital gold is here, which is bullion transactions through apps wherein you can start accumulating as low as Re.1/- at a time. Digital gold has also opened an array of buying options. You can take up the SIP option for investment and accumulate as much as gold as desired.

A decade ago, if we would’ve told anyone that it was possible to manage an entire bullion portfolio from your mobile phone, no one would’ve believed it. But with the help of technology, it’s already a reality. Digital gold is safer, more convenient and often more profitable as there are no vested interests between you and your bullion investment. You get to buy, sell and book profitsdoorsetpdoorstep delivery at real time market rates, transact securely and safely stow away your gold, without ever dealing with cash or carrying your gold around to bank lockers. The future is here, and everyone should be with it!

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Sachin Kothari

The author is Director at Augmont, India’s Largest Integrated Gold Ecosystem

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