India has got a $5 trillion sleeping giant: Can govt wake it up?
India's household gold holdings are estimated at approximately 24,000–25,000 tonnes — more than the combined gold reserves of the world's ten largest central banks — valued at roughly $4.4–5 trillion at current prices, making it one of the largest pools of privately held gold in the world.
Despite a decade of operation since its 2015 launch, the Gold Monetisation Scheme (GMS) has mobilised only an estimated 38–39 tonnes of gold, a fraction of a percent of household holdings, signalling a wide gap between scheme potential and actual utilisation.
The government is actively exploring a structural revamp of the GMS that would bring jewellers into the collection network as authorised intermediaries — jewellers would conduct initial purity checks, forward gold to refiners and banks, and receive a service fee for mobilising deposits.
The medium-term and long-term government deposit options under GMS were discontinued with effect from March 26, 2025; only the Short-Term Bank Deposit (1–3 years) remains available.
Activating even a fraction of this idle gold would reduce India's annual gold import bill (which reached a record $71.98 billion in 2025–26), ease pressure on the current account deficit, and reduce the external vulnerability of the rupee.
Gold Monetisation Scheme (GMS), 2015
The Gold Monetisation Scheme was announced via the government's Office Memorandum dated September 15, 2015 and formally launched on November 5, 2015. It replaced and subsumed the earlier Gold Deposit Scheme (1999) and the Gold Metal Loan Scheme. The objective is to mobilise idle gold held by households and institutions, put it into productive economic use, and reduce India's dependence on gold imports over the long term. Under the scheme, depositors can earn interest on their physical gold holdings (in gold weight terms) while gold is lent to jewellers through banks.
Key Details
- Three deposit structures were originally offered: Short-Term Bank Deposit (STBD, 1–3 years at 2.25% per annum), Medium-Term Government Deposit (MTGD, 5–7 years), and Long-Term Government Deposit (LTGD, 12–15 years).
- The MTGD and LTGD options were withdrawn with effect from March 26, 2025; only the STBD is currently available.
- Gold is collected through designated Collection and Purity Testing Centres (CPTCs) and then forwarded to refiners.
- Interest is paid in gold (grams), not cash — protecting the depositor from currency depreciation.
- Proposed revamp: jewellers to act as collection intermediaries, earning a service fee, which would significantly expand geographic reach and lower the convenience barrier for depositors.
The scheme's persistently low uptake (38–39 tonnes against a potential of 24,000+ tonnes) despite a decade of operation illustrates the structural barriers — trust deficit, lack of convenience, emotional attachment to physical gold, and inadequate incentives — that a revamped architecture with jewellers must overcome.
Current Account Deficit (CAD) and India's Gold Import Problem
The Current Account Deficit (CAD) is the difference between the value of goods and services imported and those exported, combined with net transfer payments. Gold is a major contributor to India's merchandise import bill and, therefore, a key driver of CAD. India is the world's second-largest consumer of gold (after China) and has negligible domestic gold production, making it structurally dependent on imports to meet demand for jewellery, investment, and industrial use.
Key Details
- India's gold import bill in 2025–26 reached a record $71.98 billion (721 tonnes imported at elevated global prices), even as volume was lower than the 757 tonnes imported in 2024–25.
- The India's trade deficit surged to $333.2 billion in 2025–26, with gold a significant component.
- India's CAD rose to $13.2 billion (1.3% of GDP) in the December 2025 quarter, driven in part by a higher trade deficit.
- In April 2026, the government raised the gold import duty from 6% to 15% — the largest single increase on record — to curb import demand and conserve foreign exchange.
- India's forex reserves stood at $691.11 billion as of March 2026.
If the GMS can mobilise even 3,000 tonnes — roughly 12% of household holdings — it would significantly reduce the need to import new gold for domestic industrial and jewellery use, directly alleviating CAD pressure and reducing rupee depreciation risk.
RBI's Role in Monetary Gold Management
The Reserve Bank of India (RBI) acts as the government's banker and as a custodian of the nation's foreign exchange reserves, which include gold holdings. Under the GMS, medium- and long-term deposits were sovereign liabilities — the government (not banks) was the borrower and interest payer — giving RBI a supervisory role in managing and deploying the mobilised gold. Banks participate as intermediaries for the short-term tranche, which functions more like a conventional gold deposit product.
Key Details
- India's official RBI gold reserves stood at approximately 876.18 tonnes as of March 2026 (trading economics data), stored partly domestically and partly at the Bank of England.
- RBI's gold reserve management is governed by the Reserve Bank of India Act, 1934, which specifies the minimum gold and currency assets that must be held as backing.
- Under GMS, the government can lend mobilised household gold to domestic jewellers through banks, displacing equivalent gold imports — this is the core mechanism for reducing the import bill.
- The Sovereign Gold Bond (SGB) scheme (launched 2015, also now discontinued for new issuances as of 2024) was a complementary instrument — paper gold earning 2.5% interest per annum — designed to attract investment demand away from physical imports.
The RBI's dual role — as manager of sovereign gold assets and supervisor of the banking system participating in GMS — means any large-scale revamp of the scheme requires RBI coordination, particularly for refiner empanelment, purity assurance standards, and the accounting treatment of gold deposits on bank balance sheets.
Balance of Payments and External Sector Vulnerability
The Balance of Payments (BoP) is a systematic record of all economic transactions between residents of a country and the rest of the world over a period. It has two main accounts: the Current Account (trade in goods and services, income, and transfers) and the Capital Account / Financial Account (FDI, FPI, loans, and reserve changes). A persistent CAD must be financed by capital inflows; when capital inflows are insufficient, it depletes forex reserves and puts downward pressure on the currency.
Key Details
- India's structural gold import demand (averaging ~700–800 tonnes per year) is a chronic source of CAD pressure.
- The rupee depreciated by more than 7% year-to-date as of mid-2026, compounding the gold import bill in rupee terms.
- Higher gold import duty (15% from April 2026) and GMS revamp are both demand-management tools on the external sector side.
- Sovereign Gold Bonds (now discontinued for new issuances) were a financial-account tool — domestic savings channelled into paper gold rather than physical imports.
- The World Gold Council estimates India holds the world's largest privately held gold stock, making it both the largest source of latent supply and the largest source of import substitution potential.
Mobilising idle household gold is fundamentally a balance-of-payments strategy — reducing import leakage by recycling domestic gold stocks through the formal financial system. The $5 trillion valuation of household gold holdings frames this as a macroeconomic policy lever of the first order.
- Estimated Indian household gold holdings: ~24,000–25,000 tonnes (NSE Market Pulse, June 2026).
- Approximate value at current prices: ~$4.4–5 trillion (Rs 375 lakh crore).
- Gold mobilised under GMS since 2015: ~38–39 tonnes (as of 2025).
- GMS launched: November 5, 2015; replaced Gold Deposit Scheme (1999).
- Medium-Term and Long-Term government deposit options under GMS discontinued: March 26, 2025.
- Only Short-Term Bank Deposit (1–3 years, 2.25% p.a.) remains available under GMS.
- India's gold import bill in 2025–26: $71.98 billion (a record high).
- India's trade deficit in 2025–26: $333.2 billion.
- India's CAD: $13.2 billion (1.3% of GDP) in the December 2025 quarter.
- Gold import duty raised from 6% to 15% in April 2026.
- India's forex reserves: $691.11 billion (March 2026).
- India's RBI official gold reserves: ~876 tonnes (March 2026).
- India is the world's second-largest gold consumer (after China).