The Indian Love for Gold -‐ Mayank Goel With a booming population of a country like India it is easy for an economist to postulate that the reason for persistent stagflation is the ever-‐growing labor force, which does not find employment due to a resource crunch –not to mention the demand against these resources causes the high inflation-‐ and a resulting lack in employment opportunities. Where stagflation would mean a state of high inflation and high unemployment, which under general conditions are supposed to be inversely related (simply putting it, you employ more, you pay more, higher prices, high inflation, that’s how it should go). The above, even stepping back from the textbook jargon, would seem like a standard argument that an economist would give for a ‘third world’ state of affairs. But have we ever wondered, comparing ourselves with other economies, that our problem might be exacerbated by cultural biases that infect the masses. Well, on one had we have a huge ‘unrecorded’ economy running on black money, as Indians are still skeptic people and like to hold cash. Never the less such cash is still circulated quite a bit, put to some productive use and not all is lost. But a peculiar problem lies with another monetary asset that Indians for countless generations have preferred and still, quite ardently, prefer to hold and that is gold. Let us see how gold is an important focal point of Indian culture and what is its probable impact on this idea of stagflation we are talking about. In more general terms, is it possible that the love of this lustrous metal makes us economically tardy as a nation? Gold is something that is synonymous with wealth in India. India is the world’s largest consumer of gold. On occasions such as marriages, cultural or religious festivals, buying, selling and gifting gold are next to a ritual task that households enact. Our religious sentiments, their relating texts and how they have evolved overtime have gold playing a major role. We pray to god for gold, we make offerings of gold coins and bullions at temples and even dress our idols in gold. Ornaments and dress sense, both traditional and modern have a major element of gold. The wealth that people inherit
from their forefathers in many Indian households is mostly in the form of land and gold. So, we can easily say that Indians invest a lot in gold. But the nature of gold is such that it only has time value. That means the only benefit it creates is that it can be sold at a higher price later. It adds no functional benefit or utility in the economy i.e. if gold is just lying in your cupboard you cannot lend it to another person to invest and create some goods and services to increase output in the economy. Now, inflation happens when the output is not enough to meet the demand in the economy. And that is exactly what happens when Indians put their savings in gold and do not lend them to borrowers for investment. This retards the output growth and no new labor is easily employed. Unemployment stays high as ever and Indian policy makers find themselves in the same Catch-‐22 situation, namely, stagflation. The bottom line is that Indians need to reduce the aurophilia and put the money where it is needed the most, in development of the economy. So we see, when we put aside the traditional economic eye-‐lens for a second and look at the cultural society from a behavioral point of view, we realize that the economic and moreover material condition of our country will not become better simply through dynamic monetary and fiscal policies but a change of mental attitude that has been passed on from generation to generation indefinitely. 