However, the per capita gold consumption in the world’s third-largest economy is only 0.7 grams, half that of the United States and one-third of the Middle East, according to World Gold Council (WGC) estimates.

“This figure is significantly below consumption in Western markets, representing scope for additional future growth”, said council’s research paper entitled ‘India: Heart of Gold’.

In 2009, the demand for India’s gold, which represents nearly 11 per cent of global stock, reached $19 billion, accounting for 15 per cent of the international market for the yellow metal, added the report.

“India is the largest gold market in the world and, as such, the likely recovery of local gold demand to pre-crisis levels is of considerable strategic importance to the wider gold market,” said Eily Ong, Investment Research Manager at the council.

Over a decade, the value of gold demand in India has increased at an average rate of 13 per cent per year, outpacing the country’s real GDP, inflation and population growth by six percent, eight percent and 12 percent respectively, according to the report.

The WGC report also revealed that the country currently has one of the highest saving rates in the world, estimated at around 30 percent of total income, of which 10 percent is already invested in gold.

“Gold is an integral part of Indian society and a foundation of wealth and savings in India,” said Ong. “As consumers have adjusted their price expectations upwards, a further rise in gold jewelry and investment demand is anticipated and this trend is projected to continue over the long-run as local investors are buying gold driven by wealth accumulation motives.”

The WGC report said the current demand trend for the yellow metal suggested a robust year-on-year recovery in imports from the 2009 levels. Gold imports, which remain high partly due to the country’s large population of about 1.2 billion, stood at $19.9 billion in 2009, it added.

India’s precious metal market is estimated to have more than 300,000 jewelers, mostly small, family-run businesses, said the WGC report, adding that only 23 banks and some private and government trading agencies have licenses to import gold due to its implications for foreign exchange flows.

Investment purchases of gold have been rising faster than jewelry purchases, said the report, adding that the investment to jewelry ratio was approximately 15:85 in 2009.

“As consumers have adjusted their price expectations upwards, a further rise in gold jewelry and investment demand is anticipated and this trend is projected to continue over the long-run as local investors are buying gold driven by wealth accumulation motives,” said Ong.

Gold exchange-traded funds (ETF) may be new for India, but are gaining in popularity as investors become aware of the benefits of investing in gold in a non-material form as opposed to holding it as jewelry.

The country has eight gold ETFs currently listed with a total collection of more than 11 tons, nearly double compared to last year.

Though gold faces competition from diamonds in urban areas as incomes have risen, the higher purchasing power of the lower and middle-income sections of the population has brought new customers into the market, revealed the report.