Why this matters

India loves gold. Households, temples and firms together hold one of the world’s largest private gold stocks, yet we import hundreds of tonnes every year. That strains the current account, keeps savings locked in cupboards, and exposes families to theft and purity risks. A smarter gold system can protect savers, cut imports, formalise the trade, create jobs, and fund development—a path to the future that is, quite literally, “paved with gold”.

Where India stands today (short view)

• Heavy imports, shallow financial use: Most gold is bought as jewellery or coins; little of it returns to the formal system.
  
• Purity worries fading: The Bureau of Indian Standards has made Hallmark Unique Identification mandatory in most districts, improving trust and resale value.
  
• New market plumbing appears: The India International Bullion Exchange at Gujarat International Finance Tec-City offers a regulated gateway for bullion imports and transparent price discovery.
  
• Public savings tools exist but are underused: The Gold Monetisation Scheme and the Sovereign Gold Bond scheme mobilise idle gold and give returns linked to the market price.
  

The policy toolkit

• Gold Monetisation Scheme (2015): People and institutions can deposit idle gold at banks, earn interest in gold terms, and get the metal back or its rupee value later. Banks lend that gold to jewellers—reducing fresh imports.
  
• Sovereign Gold Bond scheme (2015): The Government (through the Reserve Bank of India) issues paper gold that pays annual interest and also gives the price gain when redeemed; there is no storage risk or making charges.
  
• India International Bullion Exchange (2022): A regulated marketplace for direct bullion imports, better quality standards and a path to an Indian reference price.
  
• Hallmark Unique Identification and quality standards: Mandatory hallmarking under the Bureau of Indian Standards raises purity assurance and improves buy-back.
  
• Tax, customs and compliance measures: Duty changes, stronger know-your-customer norms and reporting aim to curb smuggling and make the supply chain more transparent.
  

Why mobilising gold helps the real economy

• Cuts the import bill: Each gram recycled or mobilised is one less gram imported.
  
• Converts metal into credit: Deposited gold can be lent to jewellers, lowering their working capital cost and encouraging cluster-based manufacturing for exports.
  
• Protects small savers: Paper gold and hallmarking reduce fraud, making charges and purity disputes.
  
• Deepens capital markets: A vibrant bond and bullion ecosystem gives more savings choices and stable funding for infrastructure and industry.
  

What is holding India back

Behavioural hurdles

• Families prefer the “touch-and-feel” of jewellery; they distrust paperwork and fear losing ancestral pieces.
  Fix: Respect sentiment—allow temporary melting certificates that preserve lineage records; offer doorstep pick-up and insured logistics for deposits; run simple, multilingual campaigns from banks, post offices and temples.
  

Product gaps

• Bank branches and jewellers often do not accept deposits; maturity choices are limited.
  Fix: Expand collection centres through bank–jeweller partnerships; add short and medium terms; allow pledge-and-earn options where households keep custody in bank lockers and still earn interest.
  

Returns and taxes

• People compare interest on deposits with gold’s price rise.
  Fix: Keep Sovereign Gold Bond interest attractive; give indexation benefits or simpler tax treatment for long holding periods to nudge savers to paper gold.
  

Trade and manufacturing constraints

• Small workshops face compliance and financing stress; recycling is fragmented.
  Fix: Create gold recycling parks with shared assay labs and pollution control; offer credit guarantees and digital invoices with input-credit benefits; integrate training under skill missions.
  

Price discovery and transparency

• India still depends on overseas reference prices.
  Fix: Strengthen the bullion exchange with more participants—including mutual funds and pension funds—under clear risk rules; publish an India good-delivery standard widely accepted by banks and jewellers.
  

A practical, people-first roadmap

• Make paper gold the default gift for births and weddings—easy to buy through bank apps and post offices; instant demat credit.
  
• Temple and trust gold to the productive pool with transparent audits and community consent; returns can fund local schools and clinics.
  
• Pay jewellers for purity—link working-capital rates to verified recycling, encouraging a circular gold economy.
  
• Use school curricula and women’s self-help groups to explain hallmarking, safe storage and paper gold benefits.
  
• Measure what matters—publish monthly data on deposits, recycling, import substitution and jobs created in jewellery clusters.
  

Key terms

• Gold monetisation: placing idle gold with banks to earn interest, while the system lends it to industry.
  
• Sovereign gold bond: a government security that tracks gold’s price and pays annual interest.
  
• Bullion exchange: a regulated market where refined gold bars are traded and imported with clear standards.
  
• Hallmark unique identification: a Bureau of Indian Standards code stamped on every hallmarked item to prove purity.
  
• Recycling park: an industrial cluster with assay and refining facilities to turn old jewellery and scrap into standard bars.
  

Exam hook

Key takeaways

• India can turn a cultural asset into an economic strength by mobilising idle gold, scaling paper gold, formalising recycling, and strengthening the bullion exchange and hallmarking.
  
• Benefits include lower imports, safer savings, cheaper credit for jewellers, job-rich exports, and deeper capital markets.
  

UPSC Mains (150 words)
“Explain how gold monetisation, sovereign gold bonds, hallmarking and the India International Bullion Exchange can convert India’s private gold stock into productive capital. Discuss two behavioural and two market constraints, and suggest practical fixes to raise participation.”

UPSC Prelims (MCQ)
Q. Consider the following statements:

1. Sovereign Gold Bonds are issued by the Reserve Bank of India on behalf of the Government and give both annual interest and redemption linked to the market price of gold.
   
2. The India International Bullion Exchange at Gujarat International Finance Tec-City is a regulated gateway for bullion imports and price discovery.
   
3. Hallmark Unique Identification under the Bureau of Indian Standards certifies purity and is mandatory across India.
   

Answer: 1 and 2 only.

One-line wrap
Mobilise the metal, not just the sentiment: put India’s gold to work—protect savers, power industry, and free the economy from avoidable imports.