India spent $56 billion for their gold?
February 13, 2013 -- Updated 0331 GMT (1131 HKT)
- India bought $56 billion in gold in 2012 -- all imported
- Gold demand in India is one reason for country's ballooning fiscal deficit
- More than half of India's population does not deal with a bank
- Gold seen as best investment; domestic prices rose 13% in 2012
Mumbai (CNN) -- In India, gold is gifted at weddings, when a baby is born, during festivals, to mark a promotion -- at any celebratory occasion. Walk into any gold shop, at any time of the year, and you are bound to find customers choosing a gold bracelet or biscuit. It's part and parcel of Indian culture.
In the heart of Mumbai's Jhaveri Bazaar, which translates into jewellery market, 24 year old Alfiya Bhombal shops for her wedding. She's come with her parents. The family will gift Alfiya and her groom gold at their wedding. Between trying on various necklaces and earrings, Bhombhal says "no bride will look the part without it."
Buying gold is a cultural habit in India -- one that's also driven by economics. More than half of India's population is unbanked. People who live in its villages are illiterate. Investing in a bank or a financial instrument is almost out of the question of this section of society. The easiest way to make an investment is to buy a piece of gold - a hard asset that can be stored at home. It gives good returns -- domestic gold prices rose around 13% last year.
There's one big problem with India's greed for gold. India doesn't produce any of the precious metal domestically. Everything that's consumed here, is imported. Just last year, that cost India $56 billion dollars -- and is one of the main reasons behind India's fiscal deficit ballooning. It touched a record high of 5.4% of India's gross domestic product in the July to September quarter last year.
That data had India's Finance Minister worried. In January, P Chidambaram said, "we may be left with no choice but to make it a little bit more expensive to import gold." He then raised the import duty on gold and platinum from 4 to 6% in an effort to curb demand.
Mohit Kamboj, President of the Bombay Bullion Association says he does not think this hike in gold import duty will affect a consumers appetite for gold, even if it means a gold bracelet may cost a little bit more. He said property prices have been hit by recession, the stock market hasn't given good returns. "No one has got much return on investment besides gold."
Investing in gold has been good for the retailer but according to Shubhada Rao, Chief Economist of Yes Bank, it's been a drag on the Indian economy. "Because savings have gone into gold, the financial savings have begun to deplete and that has caused structural liquidity in the banks to get lower," she said.
Across stores in India, it doesn't change much. Jewellery shops remain bustling and Bhombhal, unbothered by the government's decision to raise the import duty on gold. Buying gold is a centuries old tradition in India, one that few -- including Bhombhal -- are willing to give up.
Today's five most popular stories
Part of complete coverage on
September 24, 2014 -- Updated 1414 GMT (2214 HKT)
Liberia, Sierra Leone and Guinea -- the three countries facing the biggest health crisis -- are also facing huge bills to try and contain the virus.
September 22, 2014 -- Updated 1316 GMT (2116 HKT)
Twitter has lost its position in the top 20 coolest brands for the first time in three years.
September 25, 2014 -- Updated 1554 GMT (2354 HKT)
As the crisis in Iraq escalates, CNN looks at how Iraq could crack down on ISIS' oil riches under the guidance of its new oil minister, Adel Abdul Mahdi.
August 29, 2014 -- Updated 0842 GMT (1642 HKT)
Recep Tayyip Erdogan is Turkey's new president . So can he revitalize its economic fortunes?
September 19, 2014 -- Updated 1724 GMT (0124 HKT)
Experts share their tips on cities they see as emerging financial hubs...they're not where you think.
September 19, 2014 -- Updated 1340 GMT (2140 HKT)
Growing numbers of us are willing to serve as bank, teacher or travel agent to people we have never met, and entrust them to serve us in turn.
August 28, 2014 -- Updated 1244 GMT (2044 HKT)
The European Union is stepping in to save its dairy from going sour.
August 18, 2014 -- Updated 1236 GMT (2036 HKT)
Europe's deteriorating relationship with Russia has hit the region's growth, even before new food sanctions begin to bite.
July 16, 2014 -- Updated 1634 GMT (0034 HKT)
With cyberattacks on the rise and here to stay, it's a modern-day challenge for people and businesses to get smarter about preventing them.
August 14, 2014 -- Updated 1324 GMT (2124 HKT)
Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
September 19, 2014 -- Updated 1124 GMT (1924 HKT)
Peer-to-peer finance lets businesses bypass bank loans. Creative companies with quirky ideas find new lending models advantageous.
July 20, 2014 -- Updated 1524 GMT (2324 HKT)
Evidence points to pro-Russian separatists as perpetrators of the attack and Vladimir Putin is facing questions, David Clark writes.
September 3, 2014 -- Updated 0952 GMT (1752 HKT)
CNN's Jim Boulden looks on the future of online shopping.
August 5, 2014 -- Updated 1440 GMT (2240 HKT)
The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.