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India's demand for gold may be more subdued than expected this year amid declining household savings rate and agricultural wages, the World Gold Council (WGC) said in a report.

The WGC is the market development organization for the gold industry. It has come up with first in a series of in-depth reports on India's gold market, which looks into key drivers of gold demand in the country.

The lower-than-expected demand is also due to prolonged coronavirus-related disruption in the aftermath of country's battle with second wave.

However, imports remain strong and retail demand is expected to pick up, as restrictions are gradually lifted across the country. Amid festive season, jewelers usually expect good sales in the October-December quarter.

Currently, gold prices are near one-month high of 47,546 per 10 gram in the Indian market.

However, in 2022, the report stated that economic growth and the impact of pent-up demand for gold are likely to presage a period of robust demand, although any future outbreaks of coronavirus could create further uncertainties.

In India, rising income is one of the biggest drivers of gold demand, and as India’s economy grows, sales of the precious metal should increase, the WGC report said.

Since the 1990s, the report said that middle class expanded and household incomes rose, with per capita net income rising from 7,000 to 1,34,186 per year in FY20.

However, “households are saving proportionately less than they used to, which may reduce the amount of capital they allocate to gold," it added.

In the long term, income may be the key long-term driver of demand, but it is affected by a variety of other factors, including policy measures.

"Support from such measures is currently lacking as policy makers view gold demand solely through the prism of imports. Meanwhile, industry efforts to improve transparency are not cohesive," the report stated.

"Building trust and improving awareness among consumers, together with innovation, can play a role in enhancing the image of India’s gold industry, boosting domestic demand and allowing it to play a pivotal role in rebuilding household finances in the post-Covid world."

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