India’s central government in January raised the tax on refined gold imports by 50 percent. This increase to 6 percent from 4 percent is the second rise this fiscal year. Why does it keep making gold more expensive, particularly as the nation enters its prime wedding season when brides will be bedecked with the metal from head to toe?
That’s part of the problem — a large part. India’s cultural attachment to gold is something that anybody who has been to an Indian wedding could tell you about. For those of you who haven’t, consider this report from CBS’s “60 Minutes” TV news program:
“India’s love for gold is almost a religion. Beyond being a symbol of wealth and status, gold is part of worship and culture – a tradition that goes back thousands of years. From birth to death, for men and women, among rich and poor – acquiring gold is a goal for the people of India. All of which has made India the world’s largest consumer of gold and thus a powerhouse in industry … Just as part of the American dream is to own a home, the dream in India is to own gold. For Indians, gold jewelry is wearable wealth, financial security that’s also a fashion statement.”
CBS notes that half the gold that Indians buy each year is jewelry bought for a wedding. And as this Voice of America report says, India produces almost no gold, and imports 700 tons a year to feed demand. That’s half of 700 tons, sitting on India’s brides. It’s your savings, not to mention an inflation-proof investment. Here’s an enlightening excerpt from that report:
“A professor at the National Institute of Public Finance and Policy, N. Bhanumurthy, says this massive import bill is contributing to a trade deficit. He says gold also is seen as an unproductive investment. ‘More than half of the current account deficit has been contributed by the imports of gold in the recent period. The savings should be channelized for some investment activity. Gold is neither investment nor financial savings,’ he explained.”