Why rising gold prices make Indian households richer, and Sachin Tendulkar is now an economics teacher

Tanishq and Sachin may not be wrong. Higher gold imports widen India’s merchandise trade deficit, which means India has to pay even more in foreign currencies than what it receives for its exports. A widening of this deficit exerts pressure on the Indian rupee to weaken, which makes foreign goods and services even more expensive for Indians importing them. And gold is a big factor when it comes to Indian trade dynamics.

Indians love gold

India is second only to China in its thirst for gold. According to the World Gold Council (WGC), while Chinese consumers bought 857 tonnes (tn) of gold in 2024, Indians purchased 803 tn. Over the last 15 years, the two countries have consistently accounted for just over half of the global consumer demand for the yellow metal.

But this is just the annual demand for gold. According to Morgan Stanley economists Upasna Chachra and Bani Gambhir, Indian households owned 34,600 tonnes of gold as at the end of June this year. And with prices at an all-time high, this gold is worth roughly $3.8 trillion — or 89 per cent of India’s GDP.

“…the stock of holdings of gold provides a positive wealth effect to the household balance sheet, which is also benefiting from cyclical factors of lower interest payments with monetary policy easing, and the positive impact on disposable income through direct and indirect tax cuts,” Chachra and Gambhir wrote in a note last week.

The savings breakdown

The last time a global face warned Indians of the ills of continuously importing gold was over a decade ago when Raghuram Rajan was the governor of the Reserve Bank of India (RBI). At the time, households were aggressively buying gold to stop their savings being eroded by rapidly rising prices. In fact, WGC data shows Indians’ consumption demand for gold is down nearly 20 per cent from around 15 years ago. This is partly down to the RBI adopting the flexible inflation targeting framework, which has ensured that average headline retail inflation has been brought down sharply from almost 10 per cent in 2012-13 to an expected 2.6 per cent in the current fiscal.

Falling inflation, of course, is not the only factor that has helped moderate Indians’ demand for gold — we are also investing in different assets now.

As per latest data from the RBI, the share of households’ mutual fund and equity investments doubled to 15.2 per cent of their gross financial savings in 2024-25 on the back of an incredible shift to the stock market. According to data from the NSE, individuals put in Rs 1.66 lakh core into Indian equities in 2024 on a net basis — more than the Rs 1.53 lakh crore they invested in the previous 10 years combined.

But what about money used to buy physical, not financial, assets?

Data from the statistics ministry shows that household savings in the form of physical assets reduced in the years leading up to the coronavirus pandemic to 36.9 per cent of gross savings in 2020-21 from 45.9 per cent in 2011-12. However, it then rose to 43.8 per cent in 2022-23 — widely attributed to the purchase of homes and vehicles as people took advantage of low interest rates —before edging down again to 41.5 per cent in 2023-24. Data for 2024-25 is not yet available.

The trend for savings in the form of gold and silver ornaments is not dissimilar: from 1.1 per cent of gross savings in 2011-12 to 0.7 per cent in 2020-21, 0.8 per cent in 2022-23, and back to 0.7 per cent in 2023-24.

Tendulkar’s economics Masterclass

If Indians’ demand for gold has reduced over the years, then why did Tanishq employ Tendulkar to educate the public on why lowering gold imports is beneficial for the Indian economy? The answer is the same rising gold prices which are making households owning the precious metal rather rich.

A host of factors — uncertainty caused by the US’ tariff war, its potential impact on economic growth and inflation, geopolitical risks, and purchases by central banks around the world – have led to the price of gold rising far more rapidly than even analysts expected. It crossed the Rs 1-lakh-per-10-gram mark earlier this year in April and is now moving towards Rs 1.3 lakh. The price is up more than 50 per cent from last year.

This surge has hit the ability of Indians to buy gold, which is hurting jewelers, making the exchange of old gold for new jewellery an attractive business proposal, especially during the festival season.

The impact of the significantly higher prices is showing up in India’s trade data. Data released Wednesday showed that while September saw a jump in gold imports to $9.62 billion from $4.65 billion in the same month last year, they were still down 9 per cent for the first half of 2025-26.

The ETF craze

As an investment, the thirst for the precious metal remains.

“Some part of the rise in gold imports would also be led by increased investment demand with the outperformance of gold prices. A pick-up is also seen in silver imports ($1.3 billion in September versus $452 million in August), which has also gained prominence as an investment option,” IDFC FIRST Bank Chief Economist Gaura Sen Gupta said on Thursday.

Investments in gold and silver exchange traded funds (ETFs) – mutual funds that invest in these commodities – have indeed been on the rise, with inflows in gold ETFs in September up nearly seven times compared to last year at Rs 8,363 crore. Such has been the craze to invest in these gold and silver funds that some mutual fund houses have stopped taking more money from the public.

“Due to an acute shortage of physical silver, domestic prices are now trading at a 5–12 per cent premium to international benchmarks. In effect, Indian investors are currently paying significantly more than global fair value because of supply constraints in the local market,” Varun Gupta, Chief Executive Officer at Groww Mutual Fund, wrote on LinkedIn this week.

“When fund houses create new ETF units, they must buy physical silver. Continuing to accept new lumpsum investments at this stage would mean deploying fresh inflows at temporarily elevated prices, which could correct once the premium normalises,” Gupta added.