India’s 31,000-Ton Gold Hoard Faces A Financialisation Challenge - WGC Has A Plan For Unlocking A ‘Gold-en’ Opportunity

India has had a long-standing tradition around gold ownership. According to the World Gold Council’s (WGC’s) Swarnim Udaan 2047 report, India currently has an estimated stock of over 31,000 tonnes of gold holdings valued at Rs 314.9 lakh crore rupees.

The report states that the mobilisation of even a small share of these holdings can potentially unlock economic value by deepening financial markets, enhancing liquidity, and strengthening capital formation across the country. However, WGC believes that the next phase of financialisation of gold savings has to be driven by an ecosystem that spurs the adoption of paper gold through an ecosystem that connects electronic gold receipts (EGRs), digital gold, bullion banking, and gold-backed financial products, among other things.

Incidentally, India’s gold investment market remains heavily skewed toward physical gold. According to the WGC report, approximately 88 per cent of investment demand is concentrated in bars and coins. Though a gradual shift toward paper gold is underway, the transition is replete with certain challenges, it further says.

Low Penetration Of Gold ETFs

Gold exchange-traded funds (ETFs) offer a simplified means to invest in gold without the hassles of owning physical gold and storing it safely. Yet, their popularity in India remains relatively low compared to other markets.

According to the report, gold ETFs represented approximately 95 per cent of investment demand in the US and Germany in 2025. Similarly, ETFs made up as much as 98 per cent of investment demand in the UK and 90 per cent in Canada. Even in China, which has a tradition of owning physical gold like India, the ETF penetration stood at 25 per cent in 2025. In India, though, only 12 per cent of India’s gold investment demand is captured by ETFs.

Even as ETF penetration remains relatively lower in India, it has grown from just 3 per cent in 2018. WGC suggests that the growing demand for ETFs can be capitalised on for the financialisation of gold by adopting several key solutions. WGC suggests that regulators, such as the National Pension System (NPS) and the Pension Fund Regulatory and Development Authority (PFRDA), should expand the allocation of pension funds and insurance funds into regulated gold instruments.

Allowing institutional investors like pension funds to allocate one to three per cent of their assets into gold ETFs can potentially add stable institutional capital into the commodity market. Additionally, enabling physical redemption of gold ETFs into certified bars, coins, or hallmarked jewellery through accredited jewellers can also bridge the gap between financial holdings and cultural ownership. WGC also suggests launching a nationwide investor awareness campaign to help demystify financial gold for retail investors.

Tax Ambiguity For Electronic Gold Receipts

The government had announced the launch of EGRs in the Union Budget 2021-22. The Securities and Exchange Board of India (Sebi) also implemented a framework for the trade of EGRs, and the first EGRs commenced trading on the BSE in October 2022.

Notably, EGRs financialise gold savings by allowing investors to hold and trade gold in dematerialised form backed by physical gold stored in accredited vaults. Investors can convert physical gold to EGRs and trade them on stock exchanges. Unlike ETFs, EGRs can be reconverted into physical form through empanelled vault managers.

However, ambiguity surrounding the Goods and Services Tax (GST) limits their adoption. While no capital gains tax applies when physical gold is converted to an EGR, the GST treatment remains unclear both on the conversion itself and on the three per cent tax paid on the underlying physical gold.

According to the report, industry participants stress that tax friction adds to the burden and ends up discouraging retail participation in EGRs. Additionally, there is no clarity at the point of redemption on whether the depositor, buyer, vault manager, or intermediary must handle tax liabilities.

To overcome these taxation hurdles, WGC suggests the establishment of definitive tax rules which explicitly exempt physical-to-digital conversions from additional levies along with the provision of guidelines on input tax credits and clarify redemption obligations.

Digital Gold In A Grey Zone

The low-ticket size required for investing in digital gold and the rising adoption of fintech applications in India have led to an increased investor interest in digital gold. However, the category itself continues to exist in a grey zone from a regulatory perspective. While consumers often see digital gold as a form of regulated gold ownership or a safe savings product, it does not sit within existing regulatory frameworks. Sebi has clarified that digital gold is neither a regulated security nor a recognised commodity derivative. Thus, regulated financial intermediaries are barred from distributing it.

According to a Monitor Deloitte survey cited in the WGC report, 62 per cent of consumers mistakenly perceive digital gold as a regulated product, while 78 per cent say that they have a medium or high trust in the product. The lack of a product-specific regulatory framework, protections for investors and grievance redressal mechanisms make such investments extremely risky.

While Sebi has advised investors not to invest in digital gold at the moment, WGC suggests that introducing a risk-proportionate regulatory framework could ease the issues surrounding digital gold and enable the financialisation of gold through the category. WGC also suggests regulatory guidelines mandating 100 per cent physical gold backing in accredited vaults, independent third-party audits, ring-fenced customer asset custody, and clear disclosure rules along with stringent licensing criteria for platform operators.

Unlocking The Viksit Bharat 2047 Vision

The transition from physical gold hoarding to a transparent, paper gold ecosystem aligns directly with India’s long-term economic roadmap for 2047. Mobilising idle household gold into the formal economy aids the Viksit Bharat 2047 vision, which seeks to transform the nation into a developed economy within 100 years of its Independence.

FAQs

1. Why is gold ETF penetration low in India?

Indian investors continue to prefer physical gold, with bars and coins accounting for around 88 per cent of investment demand. Gold ETFs represent only 12 per cent, despite growing from 3 per cent in 2018.

2. What is preventing wider adoption of Electronic Gold Receipts?

Uncertainty over GST on the conversion and redemption of EGRs creates additional costs and compliance concerns. Clear rules on tax liability and input tax credit could encourage greater participation.

3. Is digital gold regulated in India?

No. Sebi does not recognise digital gold as a regulated security or commodity derivative. The absence of investor protection, custody standards and grievance mechanisms makes it riskier than regulated gold products.