The Billion-Dollar Problem
India's relationship with gold is deeply cultural, but it poses a significant economic challenge. As one of the world's largest consumers of the yellow metal, the country relies heavily on imports to meet demand. This puts constant pressure on the nation's
foreign exchange reserves and contributes significantly to the current account deficit (CAD), the difference between imports and exports. In the 2025-26 financial year, India's gold imports hit a record value of nearly $72 billion. Interestingly, this record was set despite a 4.8% decrease in the volume of gold imported, highlighting the impact of soaring global prices. This paradox—paying more for less—is a key driver behind the government's persistent efforts to find a domestic solution.
The Scheme in the Spotlight
Launched in 2015, the Gold Monetisation Scheme (GMS) was designed to address this very issue. The goal was to encourage households and institutions, which are estimated to hold between 25,000 and 34,600 tonnes of idle gold, to deposit their metal with banks. In theory, this would create a domestic supply of gold that could be used by jewellers, reducing the need for fresh imports. However, the scheme has seen limited success. Since its inception, it has only managed to mobilise about 39 tonnes of gold—a tiny fraction of the total household stash. Acknowledging its underperformance, the government discontinued the medium and long-term deposit options in March 2025, leaving only the short-term bank deposits active at the discretion of individual banks.
What Would the Revamp Look Like?
The potential revamp revolves around a crucial change in strategy: bringing local jewellers into the fold. The proposal, reportedly submitted by the India Bullion and Jewellers Association (IBJA), suggests allowing jewellers to act as collection centres. Customers could deposit their old gold with their trusted local jeweller, who would then pass it on to refiners. In return for collecting and aggregating the gold, jewellers would receive an incentive, possibly around 0.75% to 1% of the gold's value. The logic is simple but powerful. Indian households have historically shown reluctance to deposit family jewellery with banks, a process they often find cumbersome and impersonal. They tend to trust their local jeweller far more, making them a potentially effective channel to encourage participation.
The Impact on Import Strategy
If a jeweller-led model proves successful, it could fundamentally alter India's import dynamics. By tapping into the vast reservoir of gold already within the country, the government hopes to create a circular economy for the metal. This domestically sourced gold could then serve as raw material for the jewellery industry, directly reducing the demand for imported bullion. A significant reduction in gold imports would ease pressure on the rupee and help manage the CAD. Every tonne of gold mobilised domestically is a tonne that doesn't need to be bought with foreign currency. This move is part of a broader strategy that also includes adjusting import duties, which were raised to 15% in May 2026 to curb imports. A successful GMS would provide a more sustainable, long-term solution than relying solely on tariffs.
Challenges and the Trust Factor
While promising, the revamped scheme is not without its hurdles. The primary barrier to past schemes has been emotional and psychological. For many Indian families, jewellery holds sentimental value tied to inheritance and tradition, and the idea of it being melted down is a significant deterrent. The new model hinges on the trust between customers and jewellers. For the scheme to work, families must believe their gold will be weighed and valued fairly. Furthermore, the financial incentives must be attractive enough to compete with the simple cultural practice of exchanging old jewellery for new designs. Ultimately, the success of this policy pivot will depend on whether it can effectively bridge the gap between treating gold as an idle emotional asset and a productive financial one.
