Reply #58: India's costly love affair with gold

[54anickel]

Money spent on the precious metal could be cutting the country's economic growth by 0.4 percentage points per year.

http://www.csmonitor.com/2005/1207/p07s02-wosc.html

BOMBAY – In India, nearly all that glitters is, in fact, gold. With a stockpile already worth $200 billion, Indian gold purchases jumped nearly 40 percent this year, making the country the world's leading consumer of the precious metal.

Gold may seem like a savvy investment as its value hits a 22-year high. But experts say it may actually be weighing down one of Asia's fastest rising economies. It would be better if the money locked up in the glistening yellow metal went instead to finance new start-ups or better roads, boosting the Indian economy over the long term, economists contend.

That could provide quite a boost, given that the amount Indians have saved in gold - mostly as jewelry - is worth 30 percent of the country's $690 billion economy. But Indians have a deep cultural soft spot for the soft metal - something that may hinder new efforts to introduce more modern investment strategies for India's burgeoning middle class.

"It's fair to say India's economic growth would be higher if the money tied up in gold was invested more productively," says Diana Farrell, director of the McKinsey Global Institute in San Francisco.

Chetan Ahya, a Morgan Stanley economist in Bombay, has put a number on how much higher growth - roughly 0.4 percent each year. This may sound like a small quantity of growth to forgo, but in reality it translates into billions of dollars in lost wealth annually. The cumulative amount lost year after year was "huge," Mr. Ahya wrote in a report earlier this year.

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Guess the importance of culture and a general cultural awareness and respect just don't play into the globalization money chaser's scheme of things.