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Thursday, July 18, 2013

Indians Love Gold and Realty

That Indians are in love with fancy houses and precious metals is no secret. This only gets affirmed by the sharp rise over the past five years in the share of national savings diverted from financial assets, such as bank deposits, bonds, mutual funds, equities and insurance & pension funds, to physical ones — land, buildings and precious metals. This diversion has led to a corresponding fall in the flow of capital to productive sectors, affecting the capex cycle and economic growth.

According to Central Statistics Office (CSO) data, nearly half (46.4 per cent) of the country’s gross domestic savings in 2011-12 were in physical assets — a nine-year high. At the peak of India’s economic boom when GDP growth stood at 9.3 per cent in 2007-08, the corresponding ratio was a 12-year low of 29.3 per cent. The skew towards physical assets is even worse for households, including individuals who account for the bulk of total savings. In the past 10 years, households accounted for 72.6 per cent of India’s gross domestic savings on an average.

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