When the Prime Minister of India appealed to Indians that for at least one year, imports of gold into India (presently above $72 billion a year) may be avoided, he did so in the context of the great uncertainty that the country is faced with due to large scale supply disruptions mainly on account of the conflict in the Middle East and the closure or near-closure of the Strait of Hormuz. The trade imbalance has gone up sharply as a result. India’s foreign exchange reserves have fallen below $700 billion, and net foreign capital inflows have become negligible. Total reserves hardly provide adequate buffer should there be further shortages in the stock of fertilisers, fuel (crude oil and gas) and other critical materials. India’s imports of fuel alone account for over 85% of total fuel needs. And the conflict situation buttressed by periodic sanctions and sudden threats has affected fuel supplies, leading to further hikes in the prices of crude to around and sometimes beyond $100 per barrel. The current peace efforts in the Middle East may not fructify in the short run and India has to therefore seek other strategic solutions to meet demands, among others, for energy.
Against this background, it is necessary to reduce dependence on sizeable imports (in value terms) of not only fuel but also of gold and other goods. Gold is one such commodity. In so far as gold is concerned, it is traditionally held by Indian households for a number of reasons: to meet emergencies, to act as an asset and to satisfy the need to use it as jewellery for occasions such as marriages.
The stock of gold with Indian households is considerable and yet the demand for gold is rising so much so that gold imports as a percentage of total imports have gone up from about 6% in 2013-14 to an estimated 9.25% in 2025-26. In addition to gold holdings of households, the Reserve Bank of India (RBI) too holds as much as $120 billion as per the Bank’s data for April 2026. However, religious institutions/trusts/boards representing the Hindu, Islamic, Sikh, Christian and Buddhist faiths hold considerable gold stocks. Some estimates point to 2500-4000 tonnes of gold with these institutions (to be referred to as RIs hereafter).
The gold reserves of RBI formed about 17% of total foreign exchange reserves in April 2026. They help bring about macroeconomic stability and provide a buffer that could be used to douse volatility in the foreign exchange rates.
If the household demand for gold has to be addressed, one way out is to see whether RIs could satisfy it without sustaining any material loss. This is not a new idea but it could be pursued since RIs are manned by people who are as conscious of social and national interests as any other citizen. RIs therefore could be persuaded by the Government of India to issue gold coins, say of 1 oz., 2 oz. and 5 oz. and tablets of 10 oz. and sell them to individuals/small traders up to a certain limit (of say not more than 20 oz per buyer per day together with details of sale sent to the IT offices with the buyers’ PAN numbers) with a buyback option at a price that can be drawn from the futures market for either precious metals or a major foreign currency after a year. Besides, RIs could sell gold bars with a buyback option to the RBI with a condition that the option would be exercised after a period of two years. The sale amounts, however, could be constrained to not more than 50% of the total holdings of gold of each of the RIs. The agreement could be extended for yet another two years, if need be.
The sale proceeds of RIs could be utilised by them, as in the past, for financing educational institutions, hospitals, public libraries of books in print or digital form and other social causes. What is more helpful would be to ensure that a large part of the sale proceeds (say of 75-80% of the total) goes for conducting technological and scientific research to help generate innovations that help raise productivity. To take an example, exploiting rare earth elements with innovative processes would help augment the production of a number of industries (automotive, renewable energy, consumer electronics, defence and aero-space, laser, industrial manufacturing etc).
All the innovations will be patented and those who want to use the patents will have to pay a price. The amount arising from the use of patents will be distributed in a ratio, say, of 20:80 in favour of the specific RI and the actual researcher(s) or the sponsored research body.
The above proposal has the merit of addressing to a significant extent the main challenge to growth posed by the current uncertainty. Investment to nominal GDP is around 32% and augmenting this ratio further in the current circumstances of economic slowdown the world over, and the external trade and other frictions, would not be possible surely not in the next 12 months even with relaxed tax provisions applicable for foreign investors. Given the investment to GDP ratio, it is the productivity growth rendered possible through adoption of innovations and new technological processes that will ensure safeguarding India’s growth to a significant extent.
The writer is a former Executive Director of the Reserve Bank of India and is now an independent economic analyst.