India’s Gold Paradox: Can Idle Trillions Be Turned Into Economic Power?

• Households hold 25,000–50,000 tonnes of gold worth $3.8–$5 trillion.

• Gold imports jumped 24% in FY26 to a record $71.9 billion.

• RBI flags petroleum and gold as over half of trade deficit.

• Only 31 tonnes mobilised under earlier Gold Monetisation Scheme.

• Government now plans jeweller-led revamp to unlock idle reserves.

India’s deep-rooted affinity for gold has long been a symbol of cultural continuity and financial security. For families, the precious metal represents inheritance, protection against uncertainty and a tangible store of value. For policymakers, however, it presents a persistent macroeconomic challenge.

Nearly all the gold Indians purchase each year is imported using foreign currency. Once acquired, much of it moves into household vaults and temple holdings, remaining largely idle. The following year, fresh imports are needed to satisfy demand again. This recurring cycle has created a paradox: India owns one of the world’s largest private gold reserves while continuing to spend billions of dollars annually to import more.

That contradiction has become more pronounced in recent months as gold imports surged, putting pressure on the rupee and the country’s external balances. In response, the government is considering reviving gold monetisation efforts—this time by involving jewellers directly.

A Vast Private Gold Reserve

Estimates of India’s privately held gold vary, but all indicate staggering scale. According to World Gold Council-based industry assessments, households and temples collectively hold around 25,000 tonnes. Other projections place the figure closer to 30,000 tonnes, with some suggesting it could approach 50,000 tonnes.

The value of this stockpile has soared following a sharp rally in global gold prices. Kotak Institutional Equities estimates household holdings were worth more than $5 trillion as of January 2026—roughly 125% of India’s GDP. Morgan Stanley has placed the figure at $3.8 trillion, while UBS estimates around $4.5 trillion. Even the most conservative calculations confirm that India’s private gold wealth runs into multiple trillions of dollars.

Remarkably, this privately held stock exceeds the combined official reserves of the world’s leading central banks. Yet most of it sits outside the formal financial system, generating limited economic returns.

Rising Imports, Growing Concerns

The renewed push toward gold monetisation stems from mounting concerns about India’s external sector. Gold imports rose 24% in FY26 to a record $71.9 billion, even though physical volumes declined to 721 tonnes. The spike was driven largely by higher prices rather than greater quantities.

The Reserve Bank of India has highlighted that petroleum and gold together account for more than half of the country’s trade deficit, leaving the economy vulnerable to commodity price shocks and global disruptions. Public appeals by Prime Minister Narendra Modi earlier this year urging moderation in gold purchases underscored the urgency of the issue.

While import growth has slowed somewhat in recent months, the structural challenge remains: India continues to import large volumes of a commodity already abundantly present within its borders.

Revisiting Gold Monetisation

Launched in 2015, the Gold Monetisation Scheme (GMS) aimed to encourage households to deposit idle gold with banks in exchange for interest earnings. The deposited metal would then be refined and recycled for productive use.

In practice, the programme struggled. By November 2024, only about 31 tonnes had been mobilised through approximately 5,700 depositors—an insignificant amount relative to the country’s total holdings. Many families were reluctant to part with heirloom jewellery, especially when it involved melting ornaments for purity testing. Returns were modest, and procedures were often seen as cumbersome. Portions of the scheme were discontinued in 2025.

Now, policymakers are exploring a revamped version, potentially ahead of the festive season. A key proposed change is integrating jewellers into the system. Industry leaders argue that jewellers enjoy greater consumer trust and possess the infrastructure for valuation and collection.

Under the proposed structure, jewellers would serve as collection points, forwarding gold to authorised refiners and banks while earning service fees. In turn, access to domestically mobilised gold could reduce jewellers’ reliance on imported bullion and lower financing costs.

Creating a Circular Gold Economy

Beyond simple deposits, industry groups have suggested building a circular ecosystem. Deposited gold could be refined and converted into electronic gold receipts, then channelled back to jewellers via gold metal loans. Currently, banks source gold largely from international bullion markets before lending to jewellers. A domestic recycling mechanism could substitute imports without disrupting supply.

Proposals also include tax incentives on interest earned from gold deposits and streamlined treatment of electronic gold receipts to encourage participation. The overarching goal is to treat gold more as a financial asset than as dormant wealth.

Signs of Changing Behaviour

Although deposit schemes have struggled, gold-backed lending has grown rapidly. Loans secured against gold jewellery have expanded sharply, and major gold finance companies now hold record levels of pledged metal. By the end of FY26, Muthoot Finance, Manappuram Finance and IIFL Finance together held 334 tonnes—exceeding the official reserves of several nations.

This expansion has prompted tighter oversight from the RBI, including stricter loan-to-value norms. Recent gold price corrections have even triggered margin calls in certain cases, highlighting how integrated gold has become within India’s credit system.

The success of gold loans suggests households are willing to monetise their holdings—provided they retain ownership and the process is straightforward.

The Cultural Hurdle

However, deposit-based monetisation requires deeper trust. For many Indian families, gold embodies emotional, cultural and social value that extends beyond financial calculation. Pledging jewellery temporarily is one thing; surrendering it to a deposit scheme is another.

Any new programme must therefore address not only economic design but also behavioural factors.

The Potential Payoff

Even limited success could yield significant benefits. Industry body Assocham estimates that channeling just 2% of household gold holdings into financial assets annually could cumulatively add around $7.5 trillion to GDP by 2047 through multiplier effects.

Economists also warn that persistent gold imports effectively divert household savings away from banks and capital markets into physical assets. This reduces funds available for productive investment.

India’s challenge is not eliminating its appetite for gold but reducing dependence on fresh imports by better utilising what it already possesses. Whether jeweller participation can achieve what earlier efforts could not remains uncertain. But the economic rationale is increasingly compelling.

India stands as both one of the world’s largest gold owners and one of its largest importers. Bridging that gap—by converting idle wealth into working capital—could ease trade pressures, strengthen domestic credit and enhance economic resilience in the years ahead.