How To Free Up India’s Biggest Hidden Wealth
You may have read ‘the parable of talents’ in the Bible which tells of a man who gave some capital to each of three servants before going on a long trip. When he came back, two servants returned their capital, plus the gain they had made by using it in trade. The third could return only the capital, because he had buried it for safety, instead of deploying it usefully.
No prizes for guessing what ‘reward’ the third servant received.
India’s households are like the third servant—we hoard our wealth instead of using it.
Our country is the world’s second-biggest importer of gold—about 800 to 900 tones annually. Gold is our second biggest import item.
Only a miniscule amount of this gold is re-exported, in the form of jewellery. Almost all of it lands up in people’s houses.  One estimate states the amount of gold in India’s households at 21,723 tons—which would fill up 2,200 Tata 1512 trucks.  
The money involved is mind-boggling.
If we believe this estimate, Indian households are holding US$1.45trn (trillion) worth of gold, equivalent to Rs135 lakh crore— three times the 2023 budget.
This wealth yields very little. If it were possible to encash it, the interest on it would amount to US$72bn (billion; Rs6 lakh crore), at the current one-year US Treasury rate.
“Pointless quoting such numbers,” you may be thinking, “that gold is never going anywhere.”
Maybe you are right, maybe not...
Let’s first look at why our households buy so much gold.
Gold ornaments have a number of ‘uses’ (for lack of a better word):
  • Daily wear, such as a pair of bangles, earrings and such
  • Grand jewellery to display at social events
  • Personal wealth of women, to be used only in the direst need
  • Investment, for appreciation in value.
I dare not question the need for women to wear jewellery and, hence, I will take these uses as granted, mandatory and unshakeable.
Turning to the wealth and investment side, the plain truth is—gold has not been a very great investment.
In 1980, when US$/Rs was 7.86, gold was US$850 per Troy ounce, or US$27/gm, which worked out to Rs215/gm. Today, it is Rs6,200/gm—an appreciation of 29 times. 
The numbers for Sensex are: 129 in 1980 and 66,000 now—an appreciation of 512 times.
Need I say more?
Besides, gold in the form of jewellery is not easy to encash in an emergency, because one would be lucky to get even 70% of the theoretical value of a similar weight of gold. There will be deductions on account of purity (jewellery is not 999 pure), spread between buy and sell rates, plus income-tax of 20% on long-term capital gain.
On the other hand, shares or mutual funds can be sold easily, and there is no long-term capital gain tax.
Phew, the numbers are over, and the background is set.
What is the alternative, you ask?
Let’s set aside the daily wear jewellery that never leaves a woman, and consider the ‘grand’ jewellery for special occasions.
Several problems arise.
Old jewellery goes out of style, does not match modern outfits and doesn’t look like new because it loses its lustre—not quite the thing for wearing at a gala occasion.
New jewellery looks great, and every woman would love to wear it, but—alas—it is so expensive!
The solution—rent new jewellery whenever the need arises.
This is not new. It has been around in India for nearly a decade. But, I am told, the jewellery offered is usually gold plated, not real gold which the discerning eye will spot in a jiffy—nahi chalega.
This is how this business can work smoothly, with real gold jewellery.
  • Sell your old jewellery at the best price you get, not in a fire sale, but after careful negotiation with several jewellers.
  • Place the money in a Sensex fund, a bank FD, or a gold fund.
  • Open an account with a reputed jeweller who rents jewellery.
  • Pledge your investment to the jeweller as security, for borrowing jewellery with a value not exceeding an agreed limit. 
  • Whenever you want to rent a piece(s) of jewellery, go to the jeweller’s outlet, select a piece (within the price limit), pay the rental fee, and take it home.
  • Alternatively, you could select the piece(s) from the jeweller’s website, pay the rental electronically, and have the piece(s) delivered, and later collected, from your home.
Of course, the system has to incorporate confidence-building measures such as:
  • certified sanitation of the jewellery between uses; 
  • fool-proof evidence that the jewellery has been delivered to the client and later received back; 
  • cancellation of the pledge over securities in case the client opts out or the jeweller closes shop, etc.
This business model opens up a new world for both jewellers and their clientele.  
For the jeweller, the pieces earn rental revenue instead of lying in a showcase or a vault awaiting a buyer, but are still available for sale. The rentals are fully secured, hence, no risk. Footfalls in the jewellers’ showrooms are likely to increase, leading to sales that would otherwise not have happened.
Our women can wear brand new, real jewellery every time, while their investments (from the sale of their old jewellery) continue to earn income which more than offsets the rental fees.
Win-win all around, wouldn’t you say?
Even though the idea may make eminent sense, at the end of the day it will be the woman who decides.  
Mere logic will not sway our women. What could do the trick, though, is a combination of a well-known brand and a brand champion who proclaims, “I rent my jewellery from X.” 
Do you agree?
(Deserting engineering after a year in a factory, Amitabha Banerjee did an MBA in the US and returned to India. Choosing work-to-live over live-to-work, he joined banking and worked for various banks in India and the Middle East. Post-retirement, he returned to his hometown Kolkata and is now spending his golden years travelling the world, playing bridge, befriending Netflix & Prime Video and writing in his wife’s travel blog.)
Pragna Mankodi
4 months ago
The author of the article has given a very creative and disruptive idea for those holding gold as part of their investment & the jewellers. Prima facie, the idea seems excellent and implementable. However, the basic premise appears to be that the gold hoarded is by families is for the families ladies to wear or as savings for rainy day. Though I have no back up data to for my belief but based on the anecdotal data, I can say that majority of the gold is hoarded in our villages mostly due to uncertainty of agricultural income on account of the vagaries of the weather. The second largest hoarders could be business community who cannot show the investment made by them via hawala transactions. With better weather forecasting techniques and insurance cover, the agriculture community is far more secured financially than they were three decades ago. If RBI can nudge banks to deploy their financial advisors in the village areas for convincing that community to see the value of investments in other than gold, the banks would have unlocked earning opportunities for them and helped those villagers and the national economy too. For the business community, ED sleuths, Incontax raids and other strong measures, being deployed by the present dispensation by giving free hand to them, should do the trick in unearthing that hidden idke wealth. And with the technology ably supported by AI & ML, it should not be difficult. Only caveat is that it such measures should be seen to be taken in all fairness without fear or favour.
5 months ago
When I discussed topic with Boss, She roasted me and poor AB. Her Argument: 1. Nifty July 2000 1400 to current 21k same as Gold 4400 to 63k. 2. There are only 16k investors in NSE who trade more than 10 Lakhs pm. They account for 70% in value and eat small fishes. 3. Wall Street Banksters love Coke, Diamond and Yachts and Mansions. They hate Gold and love fiat.
5 months ago
Theoretically a great idea but unlikely to work in practice. A woman would not like to wear a jewellery that has been worn by other women before her. Women are unwilling to let other women within close family also to wear their personal jewellery, even on special occasion! Secondly, those requiring frequent 'renting' of jewellery will perhaps find the rental outgo prohibitive. These days, women prefer to wear imitation jewellery on grand occasions that looks like real! And now there are very good imitations available that are hard to detect with naked eyes.
I think fundamental flaw in the article is the assumption that all gold other than daily wear jewellery is in the form of 'grand jewellery for special occasions'. I believe a lot of gold, maybe 40-50% of total gold in India, resides in the form of gold biscuits of 0.999% purity, which is nothing but proceeds of black money generated in the economy. Owners of such gold know that encashment value of such gold is 100% of the current value. No deductions towards wear & tear or purity! And encashment proceeds are totally tax free (no capital gains tax) as encashed amount remains within parallel economy! Plus, hoarding gold in this form is far more convenient than hoarding in the form of cash. It also appreciates in value, historically beating inflation.
People have an inherent faith in investing in gold, even though returns are lower than stock markets. Moreover, an average Indian is not savvy in stock market investing. I believe government's move to encourage people to invest in gold in the form of paper gold viz. in Sovereign Gold Bonds and Gold ETFs, is a move in the right direction. I don't have exact numbers, but I think the move has received good response. Financial advisors also recommend investing 10-15% of one's investible funds in gold. Sovereign Gold Bonds offer a very good avenue. Not only they are gilt edged and offer 2.5% p.a. interest, but maturity value is also fully exempt from capital gains tax. So, no deduction towards wear & tear or purity and no tax on maturity.
Amitabha Banerjee
Replied to pgodbole comment 5 months ago
Yes, you are right. I am not expecting, or even hoping, that people would rush out to sell their old gold. BUT, even if 5% of the gold comes out of hiding in such a scheme, that would amount to a huge sum, about Rs 7 lakh crore. None pf the government schemes, so far, has elicited even a tiny fraction of this amount. Regards
5 months ago
A hare-brained idea. I would not trust a jeweler to hold my gold and meet his commitments. Rental jewelry is a good idea but again the security aspect is a major concern for the jeweler. Gold bonds still is a doable proposal with rental as a joint proposal. Bonds can be placed as security and the jewelry taken on rent against it.
Amitabha Banerjee
Replied to navneet.kasbekar comment 5 months ago
Hello Mr Kasbekar. As it happens, I have NOT suggested that anyone should need to hand over gold to a jeweler. My suggestion is - sell your gold, invest the money in securities, rent jewelry as and when needed.
Amitabha Banerjee
5 months ago
Readers have pointed out that capital gains on shares is not exempt from tax. My apologies
5 months ago
Business Development heads @ TANISHQ, are you hearing ? A very great idea going to be sure fire hit.
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