As the Indian rupee continues to breach multiple record lows, pressure on the country's balance of payments is intensifying. To protect foreign exchange reserves and help stabilize the trade balance, Prime Minister Narendra Modi has urged citizens to cut down on gold purchases. However, this raises the question: instead of buying new gold, could household gold be turned into working capital?
Renewed Attention on Gold Monetization
PM Modi's call has brought fresh attention to an old issue. Major bullion and jewelry bodies are once again suggesting steps to the government and the Reserve Bank of India (RBI) to reduce gold imports, utilize more household gold, and better manage how imported gold is used. Their proposals include limiting imported gold mainly for jewelry exports, bringing jewelers into gold monetization schemes, making gold metal loans (GML) work more like bank cash credit, and reducing tax on interest earned from gold deposits, as reported by ET.
Record Gold Imports
India's gold imports jumped 24% to a record $71.9 billion in 2025-26, with more than 721 tonnes imported during the financial year. This surge has exacerbated the trade deficit and put additional strain on the rupee.
Proposed System for Gold Management
Under the system proposed by the Precious Metals Refineries Forum (PMRF), imported gold would be channeled as one-year gold metal loans (GML) for jewelry exporters. Meanwhile, gold collected from household deposits, once refined locally, would be used to meet domestic demand through jewelers and retailers. The model suggests that depositors could earn 2-2.5% interest, with GML interest rates set at around 3-4%.
Tax Changes Needed
Industry players have pointed out that some tax changes will be necessary to make this work, especially when physical gold is converted into electronic gold receipts (EGR). James Jose, president of PMRF, told ET: "The 3% notional loss of GST amount on conversion puts off customers. The government can always recover the tax when EGR is converted back into physical gold for selling. Concessions on capital gains when deposit is encashed on maturity along with income tax relief on accrued interest could be considered."
Why Past Gold Schemes Failed
Many in the industry believe earlier gold monetization schemes did not succeed because jewelers were not properly included and because gold deposits and loans did not work together like a banking system. Without that, institutions accepting gold deposits face major risks from price swings and currency changes. This is why trade bodies are calling for a more complete system with bank support, secure vaults in multiple locations, renewable GMLs like working capital, and proper collateral safeguards.
Household Gold Holdings
Indian households are estimated to hold over 30,000 tonnes of gold. Despite repeated discussions during times of trade deficit and capital outflows, there is still no strong institutional system to bring this gold into the formal economy. Commenting on why earlier schemes did not work, Rajesh Rokde, chairman of All India Gem and Jewellery Domestic Council (GJC), said: "I feel the schemes did not take off because jewelers were not part of them. About 10-20% of the gold with families would be in bullion form. Most don't sell, expecting prices to rise. If some gold can be tapped, if necessary purified and converted into digital gold in a system where jewelers are involved, imports would dip significantly."
According to one representation, collection and purity testing centers (CPTCs) and related agencies have said that collected gold can be processed within 48 hours before being moved by logistics firms to secure bank-approved vaults. Sources said members of the Indian Bullion and Jewellers Association (IBJA) held discussions with central bank officials last week on exports and monetization, though the IBJA spokesman declined to share details.
