Larry Fink says India’s love for gold has done little for its economy

India’s fondness for gold has neither benefited its economy nor generated decent returns for investors, BlackRock Founder and Chairman Larry Fink said in his annual letter to shareholders of the world’s largest asset manager.

“When I visited India in November, I met policymakers who lamented their fellow citizens’ fondness for gold. The commodity has underperformed the Indian stock market … Nor has investing in gold helped the country’s economy,” Fink said.

Gold can be a good store of value but it does not stimulate economic growth; when someone keeps money in a bank, or invests in a house there’s a multiplier effect that leads to economic activity — “But gold? It just sits in a safe,” he said.

India is one of the largest markets for gold as the precious metal plays an important role in the country’s culture. It is often considered auspicious to buy gold during weddings and festivals. It is also viewed as a safe investment and a symbol of wealth. 

Investing in gold can take many forms including buying jewelry, exchange-traded funds and sovereign gold bond schemes.

Fink emphasized the importance of capital markets and how they can improve a country’s economic standing as opposed to gold, citing the role of U.S. capital markets in the American economy.

“No other force can lift more people from poverty or improve quality of life quite like capitalism. No other economic model can help us achieve our highest hopes for financial freedom — whether we want it for ourselves or our country,” Fink said.

Consumption of gold in India has consistently been one of the highest in the world. The country’s central bank, the Reserve Bank of India, purchased 4.7 tons of gold in February, taking its gold reserves to an all-time high of 817 tons, according to data from World Gold Council.

Kavita Chacko, research head of India at World Gold Council, however, said recent record highs in gold prices could hurt demand for the precious metal in India.

“Demand is unlikely to see a notable uptick in the next couple of months, even should prices moderate, as the country’s impending general elections (April to June), will see the movement of gold and cash closely monitored,” Chacko said.

Indians’ love for gold aside, the country’s stock markets have been one of the biggest gainers in the Asia-Pacific region with major institutional investors positive on Indian stocks that have hit record highs multiple times this year.

— CNBC’s Lee Ying Shan contributed to this story.