The role of Gold in Indian Economy Presented By Group: 05 Sameera - - PowerPoint PPT Presentation

The role of Gold in Indian Economy

Presented By Group: 05

Sameera Gorle Krishna Chaitanya Kesavamattam Avinash Uday Kiran Reddy Ankit Singh Yash Sanap

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Introduction: Gold and India

 On the global front, India is the largest consumer of gold. India accounts for more than 30 per cent of the global gold market.  Gold is an integral part of our lives in India.  India meets the high demand of gold from its domestic consumers by importing it.

World Consumption of Gold, 2015

Source: World Gold Council

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Gold Consumption in World

848.9 984.5 192.8 123.8 90.2 84.4

India China United States Germany Thailand Saudi Aarabia

Gold Consumption(in Tonnes) 2015

Source: World Gold Council

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Gold Production in World - 2015

Source: World Gold Council

Country Supply (in tonnes) China 582.9 USA 335.9 Australia 289.5 South Africa 272.6

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Demand & Supply

200 400 600 800 1000 1200

India China USA Germany Thailand

Gold Supply & Demand - 2015

Consumer Demand Supply

44.9% 50.8% 8.8% 29.3% 5.3% 8.8% 4.1% 3.2% 38.8% 8.9% Source: World Gold Council

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Mining and Recycling - 2015

Recycled gold  Because gold is virtually indestructible, all the gold ever mined still exists, apart from a small amount which has been lost.  At the end of 2015, there were 186,700 tonnes

• f stocks in existence above ground.

 Recycled gold therefore plays an important part in the dynamics of the gold market. 23% 17% 16% 19% 14% 11%

Mining Production

Asia South America North America Africa CIS Region Others

Source: World Gold Council

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Mining over the years

Source: World Gold Council

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Investors in India are basically divided in to two categories : Gold Investors: These people generally invest in them as pure investment purposes for higher return and sell them when the price appreciates Indian Households: They buy gold due to various social, economical, religious and financial reason

Gold as an Investment item ?

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6 5

Determinants for Investment in Gold

4 3 2 1 Gold offers excellent Liquidity Inherent Value of Gold Wealth Protection Gold is Inflation proof Smart Diversification Option Embracing Modern Options

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Gold Investments

Wealth Protection

 Gold is ideal for wealth protection primarily because unlike currencies and other financial securities, it has intrinsic value  By virtue of its scarcity, has always been a precious commodity  Gold is inherently valuable, which makes it the ideal tool for wealth protection  Diversifying into gold can be a smart move due to its position in the modern economy. The general trend observed over the past 100 years is that gold is a safe haven investment. Investors park their funds in gold during economic and political troubles

Liquidity

Gold can be easily converted into cash anywhere in the world and it is a very solid and physically visible form of money present.

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Value Appreciation  Gold has historically appreciated in value over the long term, it is easily available in a number of forms

Gold Investments

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Protecting Long-T erm Investments from Inflation Independent Demand and Supply Safe Haven during Economic Troubles Future Inflation Proof Investment

Gold Investments

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Smart Diversification Option  A portfolio consisting solely of equity investments can offer high returns, but has an equally-high risk of total loss of capital. Diversifying into gold and allocating funds to gold-related investment options can help you balance risk.  Other simpler and cheaper options include purchase of units of gold ETFs, and invest in gold mutual funds  Moreover, because gold often moves inversely to the stock market and currency values, it provides an especially effective way to diversify.

Gold Investments

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Embracing Modern Options

An investor seeking the right balance of stability of investment value, protection of capital, sustainable returns, and low security risks can explore the following gold investment options  Gold Monetisation  Gold ETFs  Gold Savings Funds  Gold Accumulation Plan

Gold Investments

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Gold doesn’t earn passive income Gold can create a bubble Need physical storage and insurance Increases in gold value coincide with local currency devaluation

Disadvantages of Investing in Gold

1 2 3 4

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India’s Love for Gold 50%

Gold Demand

Jewellery

Age Group: Under 25 years

• Bars and coins are always easier to trade

than jewellery

• There is also a lesser degree of emotional

attachment to them

&

15 Mn Marriages expected every year

• ver the next decade

Indians own 22000+ TONS of Gold

34 Source: www.mygoldguide.in

Ayurveda Good Luck & Prosperity

India’s Love for Gold

Gifts to our Gods Technology Medicine

1 gm Gold in 35-40 phones

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Why Indians invest in Gold ? Indians are besotted with gold and have been for centuries. Gold was given prime importance by our ancestors as an investment choice for a number of cultural, historical and religious reasons. Also, given the limited investment options available to common people until the advent of modern stock exchanges and large financial institutions, investing in gold also made practical sense.

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Behavioural Reasons

Gold has been the traditional form of savings amongst Indian households for many years. So, people need not be as nervous about fluctuations in gold prices when stock or bond prices move. Buying gold gives a feeling of comfort! Psychologists call this the ‘exposure effect.’ Gold is a real asset. And real assets possess an important characteristic—we can touch and feel them. The touch-and-feel factor is one reason why many prefer to buy physical gold than financial gold.

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Respect, Status and Prestige –The Social Benefits of buying Gold

• It is a paradox that has stumped economists for decades – for a country afflicted with

severe poverty, Indians are one of the biggest purchasers of gold in the world. In 2015 alone, India imported nearly 900 tonnes of gold – more than any other country and about a quarter of the global supply

• The reasons are historical, cultural and societal in nature and are very closely tied to the

‘prestigious’ label that is bestowed on gold, in large part due to its beauty and rarity. Gold has enjoyed this exalted status in India since ancient times – rulers and emperors would deck their palaces in gold, and would often donate their weight in gold to the poor as a sign of their generosity

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• Understanding such cultural and societal perceptions of gold not only help us to resolve

the aforementioned paradox, but also highlight the important social benefits of purchasing gold. As a symbol of wealth, as a token of family prestige and as an indicator

• f social standing.

Respect, Status and Prestige –The Social Benefits of buying Gold

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Gold as Social security and its role in Indian Economy

 The OASIS (Dave Committee) report indicates that nearly 90 per cent of the Indian workforce, particularly the self-employed, is not covered by any retirement scheme that enables savings for economic security during old age. Transfer of ownership is also very easy. In the case of gold ornaments one can say that possession is ownership.  Gold represents the most liquid form of asset in India. One can also say that gold is the most politically correct metal which can be owned.  Gold ornaments will work as social security for a housewife in case of major emergency or after the death of the head of the household  Gold is used as collateral in SMEs.  According to Dr Vaidyanathan, small businesses are engines of our growth and one of the major reasons for the increased demand for gold more in the form of Coins and bars is the scarcity of credit from banking sector for small and tiny businesses.

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Earnings : 100 Consumption: 80 Savings : 20 Jewellery Value in Consumption : 8.13%*80 = 6.50 Effective Savings : 20+6.50 = 26.50

30 17.84 10.53 9.92 8.13 7.07 6.38 5.52 4.61 5 10 15 20 25 30 35

Average Distribution of Consumption

Source : FICCI Gold Survey

Role of Gold in Family Budget

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8.11% 6.26% 8.34% 9.45% 7.26% 7.79% 6.65% 6.94% 9.93% 9.61% 11.44% 12.49%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Percentage Share of Gold in Imports

42 Source: www.tradingeconomic.com

Government has taken three steps to bring down gold imports:  Gold Monetization Scheme  A Sovereign Gold Bond  Introduction of an Indian Gold Coin

Announcements related to gold in the Budget 15-16

Objective:- To reduce the Current Account Deficit by lowering countries reliance on Gold imports

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Gold Monetization Scheme

Replace both the present Gold Deposit and Gold Metal Loan Schemes

Customer Deposits Ornaments or Gold bar Gold is assayed and melted at RBI mint Gold bar or Coin given back to bank Banks lend Gold to jewellers and earn interest Customer gets back his Gold with interest

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 To translate gold savings into economic investments  Would encourage investors to maintain gold in the form of financial asset  GMS is targeted at harnessing the gold lying idle with the individual households, temples, religious trusts  Increase the availability of the yellow metal in the domestic market and help jewelers  Making gold a part of the larger financial system  Orderly recycling and enhance transparency

Advantages of Gold Monetization scheme

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 The interest rate on gold deposits is just to recover the making charges on the gold.  Requires the depositor to show a receipt of purchase  Handling/storing physical gold involve costs which could make the overall costs unviable for banks

Reasons for failure

6.4 Tons

Has been deposited till Feb 2017

1.5 Tons

Has been deposited by temples & Trusts

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Sovereign Gold Bond

 Alternative to purchasing metal gold, easily traded on exchange  Government securities denominated in grams of gold  Would carry a fixed rate of interest of 2.5%/annum

Issue 1st Tranche 2nd Tranche 3rd Tranche 4th Tranche 5th Tranche 6th Tranche Issue Date 26-Nov-15 08-Feb-16 29-Mar-16 05-Aug-16 30-Sep-16 17-Nov-16 Issue Price 2684 2600 2916 3119 3150 3007 Collected Amount(Rs Crs) 246 798 329 919 768 1067 Worth of Gold(In Kg) 916 3071 1128 2950 2435 3550 BSE Price as on 23rd Feb'17 2800 2719 2807 2778 2811 2751 Return as on 23rd Feb'17 4.32 4.58

• 3.75
• 10.93
• 10.76
• 8.51

47 Source: BSE India, RBI

246 798 329 919 768 1067 916 3071 1128 2950 2435 3550 500 1000 1500 2000 2500 3000 3500 4000 1st Tranche 2nd Tranche 3rd Tranche 4th Tranche 5th Tranche 6th Tranche

Collected Amount(Rs Crs) Worth of Gold(In Kg)

• 15
• 10
• 5

5 10 1st Tranche 2nd Tranche 3rd Tranche 4th Tranche 5th Tranche 6th Tranche

Return as on 23rd Feb'17

Return as on 23rd Feb'17

Sovereign Gold Bond

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Introduction of an Indian Gold Coin

 Carries the Ashok Chakra on its face  Reduce the demand for coins minted outside Indian  Help to recycle the gold available in the country  Expected to have a healthy impact on the country’s gold sector, provided the trade is liberalized without artificial curbs and higher duties  Will ensure gold availability aligned to customer preferences  Will help curb the unofficial market

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Announcements related to gold in the Budget 16-17

 Interest earned on gold monetization scheme & long-term capital gains will be tax-exempt  Long-term capital gains (holding for more than 3 years) on gold bonds issued by the Reserve Bank will be exempt from tax  Increased the basic customs duty on imported imitation jewellery from 10 % - 15 %

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