India’s Gold Market Reform and growth encouragingly, the rural economy itself is changing. In 1993, rural areas contributed less than 30% to manufacturing output. By 2011, the time of the last census, that percentage had increased to 51.3%. A continuation of this trend could deliver meaningful change, particularly in conjunction with recent government policies.
Online marketplaces and improving infrastructure are changing consumer aspirations and logistical capabilities. This could dilute the sharp division in consuming and investing habits between rural and urban consumers in the coming years. Taken together, they could engender a period of sustained recovery for the rural economy, driving GDP growth and consumer spending across India.
There could also be considerable consequences for India’s gold industry, as rural households still account for a majority of India’s gold demand. Sustained growth in rural incomes may therefore foster demand for gold.
Indian income levels are rising! Looking back over the past 30 years underlines how far India has come since the economic liberalisation of 1991. Between that time and 2020, India’s economy grew more than nine-fold, its foreign exchange reserves soared from US$1bn to more than US$500bn, the middle class expanded and household incomes rose, 20 with per capita net income rising from Rs7,000 in the early 1990s to Rs134,186 per year in financial year (FY) 2019-20.
The coronavirus pandemic has provoked a slowdown in economic growth but long-term prospects remain bright, fuelled by these demographic changes, rising urbanisation and shifts in the rural economy. Analysis from consultancy Bain & Company, for instance, suggests that the number of middle-class households should grow by 140mn between 2018 and 2030, while the number of high-income earners will increase by 21mn.
This is likely to presage an almost four-fold increase in consumer spending, from US$1.5tn in 2018 to US$5.7tn by 2030. Such a shift could have mixed implications for gold demand. As our model shows, rising incomes historically translate into increased gold purchases. Demand will also get a boost as more people move up the economic chain from below the poverty level.
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