A path to progress that is paved with gold

UPSC Syllabus Topic: GS Paper 3 -Indian economy.

Introduction

India needs reliable, long-term capital that comes from inside the economy, not from volatile foreign flows. Global investment is shrinking and the cost of overseas borrowing is rising. Relying on external money adds risk. A practical answer is to mobilise household gold. Indian families trust gold and hold it at very large scale. The task is to shift idle gold into formal finance without coercion. This needs strong infrastructure, clear rules, and digital tracking. If done well, it can ease imports, strengthen the current account, and finance growth on India’s own terms. A path to progress that is paved with gold.

Status of Gold in India

1. Household stock:

• Indian families collectively hold about 25,000 tonnes of gold, valued near $2.4 trillion.
• This is over 55% of India’s FY26 GDP, larger than all bank credit.
• It is also nearly six times Pakistan’s GDP and greater than Italy’s economy.

2. Import dependence:

• Despite this stock, India meets roughly 87% of demand through imports. Gold forms about 8% of the total import bill.

Significance of Gold in Indian Economy

1. Deep cultural trust. Gold holds civilisational value and social acceptance.
2. Household savings. Families buy gold on auspicious occasions and ceremonies. It is passed across generations and viewed as secure wealth that can be used in need.
3. Monetary stability. Central banks hold gold as a buffer in uncertain times.
4. Industrial uses : Gold also supports industrial uses in areas such as electronics, dentistry, and aerospace, which add to its intrinsic value.
5. Store of value. Gold helps preserve purchasing power and acts as a hedge against inflation. Its price often moves differently from stocks and bonds, improving risk balance in portfolios.

Major concern related to gold for Indian economy

1. Idle stock of gold: Households hold a very large stock of gold, but most of it stays idle. This pushes up imports despite abundant domestic holdings and adds pressure on the current account.
2. Import dependence : India still meets about 87% of demand through imports, and gold has formed a sizable share of the import bill. This weakens external balances and ties growth financing to foreign conditions rather than stable, rupee savings.
3. Fragmented policy and regulatory complexity: There is no cohesive gold policy. Rules are spread across several authorities, creating overlapping circulars and notifications.

Key Regulatory Bodies Overseeing Gold Imports

• Directorate General of Foreign Trade (DGFT): Oversees policy implementation and license approvals.
• Reserve Bank of India (RBI): Monitors cross-border transactions and liquidity.
• Central Board of Indirect Taxes and Customs (CBIC): Manages customs duties and compliance.

Government initiative to bring gold in main economy

1. Gold Monetisation Scheme (GMS): People and institutions deposit jewellery (without stones), coins, or bars with banks and earn interest.
   2. Sovereign Gold Bonds (SGB): RBI issues bonds denominated in grams of gold, offering a non-physical, savings-friendly option.
   3. Indian Gold Coin (IGC): Government-minted, hallmarked coins made from domestically recycled gold via GMS, closing the loop through a circular economy.
2. A NITI Aayog committee on “Transforming India’s Gold Market” brought ministries, RBI, industry, and academia together to assess challenges and opportunities, including exports, jobs, outreach for monetisation, and domestic supply.
3. The 2018–19 Budget announced work toward a comprehensive gold policy to develop gold as a financial asset class.
4. Regulatory steps include mandatory six-digit HUID hallmarking and import-duty revisions to curb smuggling.
5. The RBI has reformed gold loans, with new rules effective from October 2025. It’s aimed is to make gold loans more borrower-friendly and expanding collateral eligibility, including tighter Loan-to-Value (LTV) caps for certain loan amounts.

Way forward

1. Build infrastructure: Need to Scale hallmarking and purity-testing centres for trusted, uniform purity checks across India. Build a formal network of collection and purity-testing centres so households can deposit jewellery, coins, and bars confidently. BIS-registered centres have nearly doubled in four years, but gaps remain
2. Strengthen logistics: Let banks handle money flows end-to-end. Use experienced collection and purity-testing centres to manage secure, transparent movement of gold from deposit to refinery and back into the system.
3. Digitalisation:

• Provide a mobile “metal balance” so households track deposits like bank accounts.
• All steps must be digital—account opening, purity test results, deposit certificate, interest credit, and redemption—so the status is easy to track in real time.
• Returns should go directly to the depositor’s bank account, with no hidden costs. Every entry should be time-stamped and auditable, making the process simple, transparent, and trustworthy.

4.Trust building: There is a need to ease GST and customs scrutiny on deposits, keep the process simple and “no-questions-asked,” and maintain transparent terms.

Conclusion

India has repeatedly turned crises into capability—food security in the 1960s, digital leadership in the 1990s, and vaccine self-reliance during COVID-19. The next frontier is financial self-reliance. Mobilising household gold through trustworthy systems, clear rules, and digital tracking can fund growth from within. If structured well, the cost of funds at 4.5%–6.5% is lower than international borrowing. Even modest mobilisation would cut import pressure, support the current account, and create a large domestic capital pool for infrastructure, manufacturing, and innovation. Done right, Bharat can fund Bharat—converting idle metal into productive capital and financing growth on India’s own terms.

Question for practice:

Examine how gold monetisation can fund India’s growth from within.

Source: The Hindu