Evolving Role of Gold in the Indian Financial System: Recent Evidence

Abstract

There is a long-felt need for policy inputs based on the "middle path" perception of gold, in-between the barbaric relic perception of gold and the fiat money status of currencies. An analysis of 157 news items during the period August 2013 through January 2015, covering the 91 experts reveals that such a moderate path is indeed available. Whereas physical gold jewelry in India is an employment and export generating industry, its financialization through Exchange Traded Funds (ETFs), availability of loans against jewelry and attractive investment status going by rising Private Equity investment reveal linkages between the real and financial sectors. Towards the end of this study period, policy-makers have cast off some of the negative perceptions of the past which drove gold underground, and announced several positive measures, including industry status for jewelry manufacture, steps towards redesigning gold deposit schemes and welcoming recycling of scrap gold, gold refining industry and reopening of gold mines. By converting unstructured data into structured information, this paper presents insights for policy-makers through simple and replicable research methods. Insights from this paper can also be found useful in other developing economies where gold is considered a safe haven asset by the masses.