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Is India's love for gold hurting growth?

As gold becomes India's second-largest import, economists say pulling money from the market may be hurting growth
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A jewellery shop employee displays 24-carat gold bars in Ahmedabad on August 20, 2011. Gold spiked to another all-time high this week as slumping global stock markets sent investors fleeing for the safe-haven precious metal while industrial commodities dived on the back of a weak demand outlook (SAM PANTHAKY/AFP/Getty Images)

India's obsession with gold knows no bounds, and with imports zooming 60 percent for the April-June quarter, making the yellow metal India's second-largest import after crude oil, economists now fear that love is hurting economic growth.

"Money spent on gold is mostly wasted because it's only hoarded and simultaneously excluded from the financial inter-mediation system," India's Economic Times newspaper quoted Abheek Barua, chief economist, HDFC Bank, as saying. 

As money has flowed into gold, India's household savings have moved away from productive financial assets, falling to 9.7% of GDP during 2010-11 compared with 12.1% in the previous year, the paper said. This shift away from financial savings can dent growth, but it's hard to say by exactly how much.

India's economic growth slowed to 7.7 per cent in the first quarter of the financial year, as compared to 8.8 per cent during the same period a year ago. The drop in GDP figures was mainly due to a slowdown in industrial growth during the first two months of the quarter, according to Business Standard

http://www.globalpost.com/dispatches/globalpost-blogs/the-rice-bowl/indias-love-gold-hurting-growth

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