Indians have been investing in gold for a long time now, the power of which has gone rather steadily up, over the years. While the challenges due to new Covid-19 variants (Omicron) continue, we are hopeful and optimistic about the consumer sentiment picking up. Gold has been long considered as an inflation hedge, and along with those changes in Indian demographics, the surge in urbanization, together with rising income levels, has played a significant role in positively influencing the domestic demand for gold in Indian households.
India is one of the largest consumers of gold with an estimated stock of over 25000 tonnes, of which 65% belongs to the rural community, and there is a huge untapped opportunity for gold loan financers. We believe, in the upcoming years, more and more gold will be accessed to power the growth of the economy. Recently the SEBI cleared a proposal for setting up a gold exchange in India, and given the relevance of this asset class in India, we expect the gold stock exchange to be formed in the future. The gold exchange will help in creating a national pricing structure for gold, and will aid in efficient and transparent price discovery, investment liquidity along assurance in the quality of gold. Besides this, it will help in providing a host of benefits to the entire value chain and also promote compliance amongst market participants.
The pandemic has led to the accelerated adoption of digitisation in the world. Digitisation has touched upon every sector in some way or the other, and the gold sector is one of them. With gold, storage is one issue that consumers often struggle with. Digital gold takes off the hassle of storage from the hands of the consumers. Digital gold is very much like normal gold, but herein the gold can be purchased online and is stored in vaults by the seller.
When it comes to digital gold, over the years, SGBs, ETFs and gold oriented mutual funds have been growing in popularity. In fact, according to the Association of Mutual Funds in India (AMFI), the number of gold ETF folios have gone up from 3.1 lakh to 24.11 lakh between September 2018 and September 2021. Digital gold also has an upper hand because of factors like purity, no designing cost, and uniformity of prices as opposed to physical gold. Users can buy digital gold in much smaller quantities which makes it a good choice for people who don’t want to invest a lot or are sceptical about this investment mode. However, lack of direct ownership of underlying physical gold, variations from gold spot prices, and limited trading hours will take time for consumers to get adjusted to these new offerings in the market.
What lies in the future is the further integration of technology into the gold sector. With Indians warming up to the massive usage of digital wallets and online payment platforms, we expect the future to entail a great opportunity for gold secured credit cards and gold wallets. In the recent past, many mobile e-wallets companies and brokers have enabled gold wallet facilities for their consumers by allowing them to purchase certified 24-karat pure gold; make quick and cost-effective money transfer payments, and avail hassle-free micro-loan services. Although currently, digital gold is not directly under the purview of any regulatory body, there is an element of risk as rules are not yet in place.
However, to drive how fast the sector is innovating, and how easily the consumers are adapting to these innovations, banks and NBFCS like us are striving to respond to the industry demand with more readily available solutions. Building trust and improving awareness among consumers, together with innovation, can play a role in enhancing the image of India’s gold industry, thereby boosting domestic demand, and playing a pivotal role in rebuilding household finances in a post-pandemic world.
George Muthoot Alexander is the MD of Muthoot Finance Ltd.