India’s enormous household stockpile of gold — estimated at around US $3.8 trillion — now presents a potential alternative to foreign investment. Instead of lying idle in lockers, this gold could be mobilised to fuel capital formation, reduce import-driven trade deficits and decrease India’s dependence on foreign capital.
Historically, since the 1991 balance-of-payments crisis, foreign direct and portfolio investment (FDI/FPI) played a critical role in supplying capital and stabilising the rupee. However, over the past decade India’s gold imports — ranging between US $450 to $500 billion — have created a substantial drain on foreign exchange reserves, counteracting, in part, gains from foreign capital inflows.
The core idea suggested is to treat gold as “domestic FDI.” By converting even a fraction of India’s household gold — currently locked as unproductive assets — into productive capital, India could reduce outflows, strengthen trade balance, and leverage internal wealth for growth.
Proposed Mechanisms to Mobilise Gold
- Voluntary Gold Procurement Scheme (VGPS): Under this plan, the government would allow individuals to sell certified-purity gold at designated centres at a discount (around 15% lower than market price). The discount would be treated as tax, and payment settled on procurement — making the scheme easy to implement and attractive for those holding idle gold.
- Zero-Coupon Government Gold Bonds (ZCGGB): Alternatively, instead of cash settlement, sellers could receive zero-coupon bonds maturing in three years. These bonds would be issued at a discount but yield returns in line with prevailing government bonds (~6% annualised), offering a tradable, market-based instrument tied to gold’s value.
If adopted, these measures could transform India’s private gold holdings into domestic capital — supporting infrastructure, industry, and development, while reducing dependence on foreign inflows.
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