TR, gold and Indian love affair with it over 1000s of years is well known. Gold for most is not a saving but a status symbol. Ornaments are not savings. Once gold comes into the house, it's rarely sold for money. Bo body buys gold coins/biscuits as a saving to sell a year later or something. That is done only by institutional investors, MFs, big private investors who keep juggling between shares and gold. In India, selling of gold means the family has hit bad times. No one sells.
On the other hand, say I have 10 lac rupees that I invest in business. Depending on how I rotate it, say trading with it, I buy goods worth that amount and sell it for a profit, say @20%. I will charge tax on it. So gift gets sales tax and then I will pay IT on the profit. Suppose I go through 3 such cycles a year, means I make 6 lacs on which I will pay 35% tax as IT, plus the sales tax.
The goods I trade in are manufactured in India which means I helped in manufacturing sector grow as well and they too contributed to te economy.
Compare this with me buying gold ornaments worth 10 lac and keeping it in bank lockers and taking it out to wear on occasions!
gold indeed is an investment tool, which helps savings and diversifies the investment portfolio. mind you, your savings in the banking system, in the saving a/c/FDs, or buying government bonds, securities are all investment tools. gold has in the past 6 years given a return of 4times. looking at the high interest in the end market, banking and financial institutions have also jumped in to make the most out of it by providing various investment products offered dealing in gold for the retail investor. think about it, is investment in shares not a saving that will yield returns in the end? what is the investor looking for by saving the amount in the bank? gold or any other commodity is no different, yes the risk remains but so is the case in the banking system, what if a bank goes bankrupt, or there is hyper inflation or there is a war and government needs endless supply of money and it doesnt want to inflate the economy with cheap money, then they will confiscate all the money in the banking system and the return that you and i are assured of is to the tune of just rs1,00,000 no matter how big a saving. as a retail investor and if you have a demat a/c, you and i can daily trade in gold, same is in the market out there, you buy from the market, sell it in the organised/unorganised sector, one ends up making good money.
not all gold bought in the retail market is in the form of jewellery. there is limit to which a household spends on jewellery, beyond that the money spent on gold ends up as an investment with the intention of getting a better return on the savings made. a good chunk get bought as biscuits, coins and ends up in bank lockers.
when you put money in a business the intent is different to money spent on gold as an investment tool or bought as a jewellery. better comparison would have been money not spent but saved in the bank or in property or shares etc and the return on it where the intent is pretty similar. now, once you have bought the gold either for investment purposes or as jewellery, the money is no more in your hands but in the hands of the business man who sold the gold to you, that business man will not be putting the same money in some locker but will circulate it, he will also rotate it depending on his capacity, he will also generate profit, pay taxes on it.
yes, i agree on the point that when you spend in business and if the manufactured good is in india then the money stays and multiplies in india, and that i have said in the beginning, the loss is at the start when the gold is imported which means the good amount of money moves overseas, but mind you that can be said for all sorts of imports, and so the stress, we need to get self sufficient in every form of manufacturing goods.
