In India, nearly all that glitters is, in fact, gold. With a stockpile already worth $200 billion, Indian gold purchases jumped nearly 40 percent this year, making the country the world's leading consumer of the precious metal.
Gold may seem like a savvy investment as its value hits a 22-year high. But experts say it may actually be weighing down one of Asia's fastest rising economies. It would be better if the money locked up in the glistening yellow metal went instead to finance new start-ups or better roads, boosting the Indian economy over the long term, economists contend.
That could provide quite a boost, given that the amount Indians have saved in gold - mostly as jewelry - is worth 30 percent of the country's $690 billion economy. But Indians have a deep cultural soft spot for the soft metal - something that may hinder new efforts to introduce more modern investment strategies for India's burgeoning middle class.
"It's fair to say India's economic growth would be higher if the money tied up in gold was invested more productively," says Diana Farrell, director of the McKinsey Global Institute in San Francisco.
Chetan Ahya, a Morgan Stanley economist in Bombay, has put a number on how much higher growth - roughly 0.4 percent each year. This may sound like a small quantity of growth to forgo, but in reality it translates into billions of dollars in lost wealth annually. The cumulative amount lost year after year was "huge," Mr. Ahya wrote in a report earlier this year.
Despite this, there is no sign yet of a substantive cooling in Indians' longstanding ardor for gold. In fact, the precious metal occupies various important cultural roles in Indian society, which augment its function as an attractive repository.
For instance, gold features prominently in ancient Indian religious epics, such as the Ramayana and Mahabharata. In Hindu marriages, brides always wear a special gold necklace. When the marriage produces a child, the newborn has a golden ring placed upon its lips for luck. In some parts of India, the baby's ear is pricked with a golden pin. Many Indian prayer ceremonies often feature small gold objects, too.
Aside from its ceremonial uses, Indians typically view gold as a safe investment, particularly since it is portable and can be converted into cash easily. "It's one of the most secure forms of savings in rural areas, especially for women, since banking services aren't always extensive or secure," says Jill Leyland, a London-based economist at the World Gold Council, which promotes the metal.
"For example, earlier this year there was a mini gold rush in Tamil Nadu, where people affected by last year's tsunami put up to half the aid money they had received into gold jewelry," Ms. Leyland says. "They could wear it, keep it safe, and it was in a form where it couldn't be frittered away."
Worries over security aren't restricted to poorer or displaced Indians, however. The country's growing middle class is still skeptical of financial investments and even bank deposits, preferring physical assets like gold and property.
"Indians haven't had the same level of trust in India's financial system as they've had in gold," says Ms. Farrell, who in a recent report calculated that India's $900 billion stock of financial assets - which includes bank deposits, shares, and bonds - was just one-fifth the size of China's.
Since financial assets comprise a medium through which savers provide funds for investment in business, industry, and infrastructure, an underdeveloped financial sector acts as an impediment to economic growth, Farrell's report points out.
The Indian government has tried various plans since the 1960s to move India's gold mountain into the financial system, such as the issue of bonds in exchange for gold, but the initiatives were only modestly successful.
Nonetheless, there are hopes that Indians will increasingly invest in financial assets as they become wealthier. Analysts say building trust in the competence of those in charge of the rapidly growing Indian economy, together with financial reforms, are key.
"With increasing wealth and income growth, you would expect to see more depth in India's banking and financial sectors," says Farrell. "It's happening slowly, but serious financial reform is required to help the process along."
Even with reforms, however, Indians aren't going to exchange their gold for shares or bonds overnight. Like most changes in India, experts anticipate the process will take a while.
"It'll take a long time to break the gold habit," says Shiv Taneja, a former Bombay journalist who is now the Asia Pacific director of Cerulli Associates, a US financial services consultancy. "It's not going to happen in the next five or 10 years; rather, it may take one or two generations. But I'm confident it will happen eventually."
In Bombay's posh suburb of Bandra, a member of India's growing middle class bears witness to Taneja's point. "I suppose I might buy shares to invest in," says Shirley Bhavnani, who helps to manage a top-end limousine service. "But I'd definitely buy gold. It's secure - it's like ready cash - and I can sell it easily whenever I want to. And don't forget, it looks good, too."