Gold rush a symptom of more fundamental problems

Curb inflation, offer products such as inflation-indexed bonds, expand financial inclusion, improve access to financial products, says Survey

The Economic Survey 2013 has captured the significant changes in the composition of domestic savings over the years and outlined the measures needed to shift investments in the yellow metal, gold, to other areas.

The savings rate in the country (gross domestic savings as a percentage of gross domestic product at market prices) peaked in 2007-08 at 36.8 per cent and reached an eight-year low of 30.8 per cent in 2011-12. Within households, the share of financial savings as against physical savings has been declining in recent years.

It said a combination of lower returns and higher volatility in the 2000s as compared to the 1990s could have contributed to the reduced proportion of shares and debentures in total financial savings.

"This, coupled with high inflation, could also be one reason why gold has become a safe haven investment in recent times," the Survey stresses. It says the acquisition of gold by households tends to have a negative impact on savings and on household financial investments. (THE INVESTMENT SKEW AND CHALLENGE)

Saying the rising demand for gold was a symptom of more fundamental problems in the economy, the Survey emphasises that curbing inflation, expanding financial inclusion, offering new products such as inflation-indexed bonds, and improving saver access to financial products are all of paramount importance.

Much of the financial savings of the household sector are in the form of bank deposits (around 30 per cent in the 2000s), life insurance funds (22 per cent in the 2000s as against 9.6 per cent in the 1980s), and pension and provident funds (16.5 per cent in the 2000s as against 23.6 per cent in the 1980s).