Indian farmers shun volatile gold, buy land instead
Any boost in rural India's income has almost always spurred gold purchases, but this year, a different story appears to be unfolding.
Posted: Thursday , 05 Sep 2013
MUMBAI (MINEWEB) -
Farmer's in India are in a quandary. The Indian government's many curbs to thwart interest in gold has perplexed farmers. Many are resorting to parking their agriculture funds in land and fixed deposits at the bank, rather than buy gold ornaments or coins, as is the custom.
Agriculture employs more than half India's population of 1.2 billion. Rural India contributes towards 60% of the country's consumption of gold, which varies between 900 to 1,000 tonnes annually and, traditionally, the better the monsoon (and, thus, the harvest) the more gold is bought.
This year, the monsoons have been good and the area under cultivation is up by 9.1% this year, which, bankers say, has led to a hefty rise in rural India's income. As a result of this, the expectation has been for strong demand for gold from the sector.
But, this year, something different appears to be unfolding.
'Farmers always tend to buy gold after a good monsoon. Many farmers in small towns have even got used to selling a small portion of their gold belongings to buy agricultural inputs or keep the bought gold as a contingency fund in case of crop failure. This year, the high price of gold has scarred farmers, most of whom have decided to invest in land,'' said,'' Ajay Chandra of Ramniklal Chandra Jewellers, a retail outlet in Pune.
A good example of this is 38-year-old farmer Piyush Kadam from the Marathawada district in the western state of Maharashtra. In Pune to buy a plot of land with the money he has made, Kadam said he would have normally gone to the village jewellery shop to buy around 100 grams of gold with every major sale at his farm.
This year, Kadam has decided to invest in land. ``Right now, the price of gold is too high for me to make any purchases. Moreover, last month the price of gold had dipped to an all time low of $376.21 (Rs 25,000)
It is a scary proposition. I can't afford to buy gold at the current rates and have it drop almost $100 (Rs 6,000) or more the very next month,'' said Kadam, adding the purchase of land would also help him tide over any near term crisis.
According to Bombay Bullion Association's Prithviraj Kothari, ``When rain dependent farm output is robust, rural income jumps. Consequently, spending on almost everything, from television sets to gold, goes up substantially. This year, more farmers are shunning gold given its high price.''
Monsoon rains are critical for agriculture output in India, since about 55% of the nation's arable land is rain fed. Heavy rainfall has led to bountiful crops across neighbouring Maharashtra, Gujarat, Rajasthan, Madhya Pradesh, Uttar Pradesh and Bihar.
The September to October timeframe is when gold purchases pick up in rural India, according to analysts, with farm income supporting big purchases. However, with gold prices at dizzying heights, the Indian farmer's penchant for gold could well be a thing of the past - for now.
iPad version: Picture: A saleswoman displays a gold necklace at a jewellery showroom in Kolkata: REUTERS/Rupak De Chowdhuri