India's overall gold imports zoomed by 38% during the second quarter of 2011 as investors continued to invest in the yellow as a hedge against inflation. According to World Gold Council, India's gold imports rose 60% in April-June 2011 from a year ago.
It looks like gold imports will continue to soar in India. Marcus Grubb, Managing Director, Investment at the World Gold Council in a press release commented "The strength of demand in India and China, coupled with an overall drop in recycling activity this quarter, demonstrates that consumers have adjusted to the current price environment and expect the upward price trend to continue. In addition, ongoing macro economic uncertainty, the continued sovereign debt crisis and widespread inflationary pressures, will result in gold demand remaining strong."
But this hoarding of the yellow metal may be one of the factors contributing to a s lower growth rate in India. Holding one's savings in gold is a 'social waste' a noted economist said. Also, that much of the gold is imported will worsen the current account deficit.
"Money spent on gold is mostly wasted because it's only hoarded and simultaneously excluded from the financial inter-mediation system," India's Economic Times newspaper quoted Abheek Barua, chief economist, HDFC Bank, as saying.
The fact that India doesn't produce much gold but imports most of the stuff increases leakages from the economy.
"If instead, the same money was spent on other assets like homes, the money would have circulated in the economy," said Sunil Sinha, senior economist with Crisil, a ratings agency told Economic Times.