The reasons for the low demand for gold are various; some are due to short-term impacts of the current economic environment, while some are due to long-term cultural changes that are here to stay. The depreciation in the value of the rupee made import of gold costlier, and hence there is a slowdown in its demand. Another reason is that rural distress has impacted the rural population, which has little disposable income to invest in gold. The long-term changes which will keep the demand for gold low are incontrollable cultural changes along with the impact of the efforts made by the government to reduce the demand for gold.
Millennials (Born 1981-2000) have little attraction towards gold, as they spend more on high-end consumer goods like smartphones, gadgets and other electric appliances. The decline is not just limited to the purchase of gold as jewelry, but has also encroached upon the purchase of gold as a safe investment. This is due to various reasons like the Modi government’s efforts to curb black money transactions, which were often sued to buy expensive gold jewelery. The great performance of the Indian stock market has encouraged people to invest in securities rather than gold. The steps like demonetization, GST, the crackdown on shell companies have made sure that the investor no longer has black money as disposable income. Therefore, from the investor’s perspective, if he/she has to give taxes in any case, might as well invest in securities because they are giving better and guaranteed returns when compared to the ever fluctuating gold.
The decrease in gold imports is a healthy sign for the Indian economy in many ways. Gold is a dead investment, so if someone purchases gold then the money is no longer in the market to be used for any other market activity. On the other hand, if the investment is in the stock market, then the company gets the money and invests in further projects, which increases market activity and hence spurs economic growth. The government has the records of investments in the stock market and it taxes the gains from investment in equities. The government collecting more taxes is good for both the individual and society, because the money collected from taxes will ultimately be used for the development of the country. Therefore, investment in stock markets over gold is a win-win situation. The reduction in gold imports and the increase in investments in the stock market indicates that the Indian economy is slowly maturing. If this trend continues, the country will very soon have a deep financial market like any other developed country.