India’s Gold Market: Evolution And Innovation

In 2015 India was the world’s fast growing economy; in recent years millions have been lifted out of poverty and India’s middle class has swelled. This is important because our econometric analysis indicates income growth drives gold demand. But India’s relationship with gold goes beyond income growth: gold is intertwined with India’s way of life. And as we look ahead, India’s gold market will evolve.


India is a wonderful country. It is diverse and dynamic. With over 500 million people under the age of 25 it is one of the youngest countries in the world. Yet, at the same time, India has a long and rich cultural heritage, with many gods, deities and beliefs intertwined with the Indian way of life.

Gold is part of this way of life. Hundreds of millions of people across India – from large, modern cities through to small rural villages – buy gold for themselves or loved ones throughout the year. Akshaya Tritiya, Diwali, harvests, weddings; gold is central to every one of these. Perhaps its little wonder India has a huge affinity for the global currency, given its long history as a trading nation.

But India is changing. Millions migrate from villages to cities every year. Agriculture’s relative importance has declined. Per capita income has increased and millions have been lifted out of poverty. Mobile phones have spread rapidly across the country; with over 220 million users, India is the world’s second largest smartphone market. Millennials think about the world differently to their forefathers. These changes have implications for gold demand.

On top of that, India’s gold market has been subject to huge policy changes over recent years. Sometimes this targets the gold industry, such as the market-distorting 80:20 rule for gold imports in 2013 and 2014. But sometimes it is an economy-wide initiative, such as the forthcoming Goods and Services Tax or 2016’s radical high value currency exchange (or ‘demonetisation’) programme. While recent new policies initiatives have been numerous and varied, they share the same objective: to move India’s informal cash economy towards greater transparency and into the digital age.

A challenge facing India’s gold industry is that part of it operates in the grey market. This minority has benefited from anonymity and a lack of transparency on price, purity, taxes and supply sources. As India’s economy presses ahead with its transition to transparency, its gold industry must shed this image and integrate into the mainstream financial system, for gold to serve as a legitimate asset class for millions and play a dynamic economic role.

It is clear that India’s gold industry is important to its policymakers. But effective policy needs good data and insight as its foundation. This report aims to provide that, by explaining how India’s gold market works across the entire supply chain – from imports and recycling through to consumer demand – and how it is likely to evolve in the coming years. It also provides an overview of existing gold-related policies and how they have evolved over recent years.

Key insights

  • Economic growth drives gold demand: India was one of the world’s fastest growing economy in 2016. This is key to the health of the gold market. Our econometric analysis of the drivers of Indian gold demand reveals income growth is the most significant factor: as India becomes richer, gold demand increases.
  • Urbanisation will change the shape of consumer demand: Rural and urban India can be thought of as two distinct markets. Rural India prefers to invest in gold jewellery, while urban India has a greater preference for bars and coins. Rural-to-urban migration will change the shape of consumer demand.
  • India has a young population with a strong affinity with gold: India has over 45% under the age of 25. And young people think about the world differently from previous generation. But our large-scale consumer research indicates that they do have a strong affinity with gold: when we asked the question what you would buy if you were given Rs50,000, a third of respondents aged between 18–33 said they would invest in gold.
  • India’s gold industry is becoming more organised: While it is still highly fragmented, the industry is becoming more organised. Retailers with large regional and national chains are gaining market share. These firms have sophisticated inventory management, well-crafted advertising campaigns and will be important in ensuring gold meets the needs of modern consumers.

At the World Gold Council, we want to support the development of India’s gold industry by working with India’s policymakers to help ensure gold becomes mainstream, and that its positive role in household finance is better appreciated. Currently, policy discussions tend to focus overwhelmingly on import controls, thereby under-leveraging the strengths of a gold culture that is widely prevalent. Policies to enable gold to operate freely in a transparent manner, as part of the organised financial system, are important to realise the broader social and economic objectives. We hope this report provides the data and insight from which effective policies can be developed.

Somasundaram PR

Managing Director, India

World Gold Council


In 2015 India was the world’s fast growing economy; in recent years millions have been lifted out of poverty and India’s middle class has swelled. This is important because our econometric analysis indicates income growth drives gold demand. But India’s relationship with gold goes beyond income growth: gold is intertwined with India’s way of life. And as we look ahead, India’s gold market will evolve.

Income growth drives gold demand

India’s middle class, consisting of some 200mn to 250mn people, is now one of the world’s largest. The India-based National Council of Applied Economic Research expects this number will exceed 500mn by 2025, while the US-based Brookings Institution reckons India’s middle class consumption will be ahead of the US and China by 2030 (Chart 1).

India's Gold Market


This is important because India’s economic growth has underpinned its gold market. Our econometric analysis of data from 1990 to 2015 revealed that income levels are the most significant long-term determinant of consumer gold demand: holding all else equal, a 1% rise in income boosts gold demand by 1%. Of course, other factors play a role too. Rising prices, taxes and other barriers can put consumers off, while a good monsoon can boost demand. But income is the dominant macro-economic factor supporting India’s gold market.

Consumer demand is evolving

Econometric analysis, while helpful, can only tell you so much. India’s relationship with gold is much richer, deeper and more complex than mere macroeconomic variables.

For large swathes of the population, gold is intertwined with their way of life. It is deeply rooted in Indian culture: gold purchases are driven by tradition, festivals and other important family and societal occasions. Our 2016 consumer research conducted by TNS identified the top three gold purchase occasions in India to be weddings (24%), birthdays (15%) and religious festivals (12%). Agriculture also plays a significant role in gold demand. Although it only contributes 17% to Indian GDP, it is integral to the rural economy, which accounts for over two-thirds of the population. Finally, there is religion. Gold is seen as a symbol of wealth and prosperity in the Hindu religion. Given all of this, it should come as no surprise that 72% of survey respondents said that they owned fine gold jewellery, 55% had bought gold in the past 12 months, and 51% said they would buy gold jewellery in the next twelve months.

In a country as large and diverse as India, there are inevitably variations. The most notable difference to emerge in the consumer research is that between rural and urban India. While the whole of India has a strong affinity with gold, this is amplified among the rural population; levels of jewellery ownership for example, are significantly higher (Chart 2).

India's Gold Market

And the type of jewellery rural consumers buy is subtly different to that bought by their urban counterparts. Rural Indians have a strong preference for plain gold jewellery, while gold set with precious/semi-precious stones is more popular in urban areas. In 2015, plain gold jewellery accounted for 88% of purchases in rural India. In urban India the figure was 57%, with gem-set pieces accounting for 35% of gold jewellery bought. The investment markets are also different: 22k jewellery is largely used for investment in rural India, while in urban India bars and coins are the preferred gold investment vehicle.
There are demographic differences, too. While rural India’s affinity with gold is strong across all ages, it is slightly weaker in urban India for younger generations.

If given Rs50,000 to spend, 33% of those aged between 18 and 33 would buy fine gold jewellery, compared with 42% of those aged 34 and over. The fact that a third of young urban Indians are inclined to buy gold jewellery is undoubtedly good; it represents a far stronger market than many other countries. But for some young urban dwellers gold is competing with designer and luxury fashion, and the ubiquitous smartphone.

So what does the future hold for India’s consumer demand? There are risks. For example, millennials in urban India are increasingly tempted by goods other than gold, particularly luxury fashion and smartphones. But this risk is firmly at the margin: young Indians still buy gold. And retailers are alert to their needs, developing online strategies to engage with them, as illustrated by Titan Industries’ acquisition of a majority stake in CaratLane, which will allow the company to enhance its e-commerce capabilities.

Given India’s growth trajectory, per capita income will continue to rise, millions more will be lifted out of poverty and its middle class will continue to grow. This will underpin growth in consumer demand.

An exciting area of potential growth is in the bar and coin market. Our consumer research indicates that there is large, unmet investment demand. In the absence of any barriers, Indian consumers would invest more in bars and coins, jewellery, and other gold-backed financial products, as illustrated by gold’s share of mind outstripping actual gold investments in 2015 (Chart 3).1

This is not to say that all of the latent demand can be converted into sales. There are barriers to purchase around price perception and online retailing platforms, for example. But if the industry tackles these challenges, innovatively thinks of how best to communicate with the consumers and develops seamless purchase journeys, some of this latent demand could certainly be realised.

The gold industry is changing

As India changes, so too does its gold industry. In 2000, around 90% of India’s gold retailers were “unorganised.” The industry was dominated by small, standalone retailers, often family jewellers, with limited marketing and advertising. Today, unorganised retailers still dominate the market, but organised retailers have taken greater market share. In 2015, national chains – including Tanishq and Malabar Gold and Diamonds – accounted for around 7% of the market, while regional chains accounted for around 23%. These organised retailers have introduced sophisticated advertising and sales campaigns, effective inventory management systems and domestic and international brands, and have raised standards within the industry. Momentum is with them and they will continue to gain market share. By 2020, the organised share of the market will have risen to 35%–40%.

India's Gold Market

This change is reflected in the manufacturing sector too. At present 5%–10% of India’s gold manufacturing sector could be deemed as being “organised” large-scale facilities; 10 years ago these would have barely existed. Nearly 65% of jewellery manufactured in India is handmade and the vast majority of the sector is still characterised by small workshops, each typically employing two to four goldsmiths. But the direction of travel is clearly towards the sector becoming more organised. International buyers, for example, have strict procurement policies that rule out many of the smaller workshops. And the orders from overseas and domestic organised retailers are often large; manufacturers need to be a certain size to be able to process these orders.

The most significant change has been in India’s refining capacity. India’s long-established refining sector has seen a sharp rise in new capacity in recent years. The organised refining landscape has grown sharply from a mere three to four refineries in 2013 to 30 refineries in 2015, including one which is LBMA-accredited – MMTC-PAMP. India’s total refining capacity is now above 1,450 tonnes (t), significantly more than India’s average annual gold imports over the past five years.

The expansion of the organised refining sector has been supported by a favourable government stance, including a bullion/doré import duty differential. But much of the additional capacity remains under-utilised, largely because of the difficulty in sourcing doré and the limited availability of recycled material. More recently, the government’s favourable stance has weakened a little, with a new tax regime squeezing refiners’ margins.

India has a long history of gold-focused policies

Government policies extend far beyond India’s refining sector. India has a long-standing affinity with gold, but gold-policy measures have often been muddled. They usually distort the market without achieving the policies’ aims. For example, the 80:20 rule, which required importers of gold to re-export 20% of imports as gold jewellery, was unwieldy and confusing. The market clammed up. The local price rocketed to a premium of more than US$100 over the global spot price and smuggling boomed. Rather than controlling the flow
of gold into India, the policy drove gold into the black market (Chart 4).

India's Gold Market

But some recent developments suggest the policy approach is getting better: the Indian Gold Coin and proposed hallmarking regulations will develop a trusted standard of gold that can be traded more easily. This matters because 86% of consumers say that hallmarking is extremely or very important.

These policies also support the Government’s gold monetisation scheme. This scheme is designed to draw some of India’s 23,000–24,000t stock of gold into the financial system. This may provide a boost to the jewellery sector by making gold loans easier to access from banks.

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