India Plans Major Gold Policy Push To Unlock Domestic Reserves And Cut Imports Says Report

Gold prices have continued their upward rise. While rising gold prices have benefitted individual investors, increasing gold rates have become a major macroeconomic concern for the economy as they increase India’s import bill at a time when the rupee is currently under pressure from a strengthening dollar. This in turn has prompted the government to accelerate its push to reduce reliance on foreign gold imports.

Earlier in May, making a push for austerity, Prime Minister Narendra Modi also urged Indians to delay their gold-buying to reduce gold imports and free up foreign exchange reserves for purchasing crude oil. Amid the broader push for reducing import dependency for gold, the Centre is now actively working on a policy aimed at better utilising the immense reserves of gold currently held within the domestic ecosystem, according to a report by NDTV Profit.

New Policy to Unlock Domestic Reserves

The report stated that the government is considering a comprehensive policy aimed at mobilising privately held gold into the formal economy. The report cited official sources who confirmed that the Centre has initiated consultations with banks and other key stakeholders to find ways to unlock India’s massive gold hoard.

These discussions are focused on strengthening the overall gold lending framework, improving supply efficiency, and increasing the availability of domestic gold through formal, regulated channels. Policymakers are reportedly looking at the current trends in the gold loan market and seeking various measures to mobilise a larger share of the gold held within India.

The report also highlighted that review meetings are also underway to assess how gold held as stock-in-trade by business entities can be used. While the discussions seem to be at a formative stage currently, it is likely that a concrete framework might be rolled out in the coming months.

What This Means for Domestic Gold Holders

For physical gold holders, the mobilisation of physical gold could lead to lucrative investment opportunities. Typically, Indian households and businesses hold vast quantities of physical gold often storing it away rather than utilising its economic potential.

If the government proceeds with the monetisation, physical gold owners could get access to new ways to earn interest on their non-yielding holdings. On the other hand, initiatives which aim to enhance the gold lending framework can also improve access to credit against gold assets. 

However, it remains to be seen how the central bank will roll out such initiatives, especially given the Reserve Bank of India’s current regulatory stance. Recently, RBI Governor Sanjay Malhotra explicitly mentioned that the bank is not considering any new gold monetisation scheme.

Addressing the media, Malhotra clarified that there is currently no proposal before the RBI to launch a fresh programme. Nevertheless, the reported consultations indicate that the government is looking at ways to reduce the import burden.

Ultimately regulators will need to balance incentives for everyday holders along with a secure macroeconomic framework which y benefits the investor and reduces the import burden.