India's Golden Habit and Economic Headache
India is one of the world's largest consumers of gold, but with little domestic production, this demand is met almost entirely through imports. This creates a significant economic challenge. When India imports gold, it pays in foreign currency, primarily
US dollars. This outflow widens the Current Account Deficit (CAD), which is the gap between the country's total imports and exports. A high CAD can put pressure on the rupee and strain the nation's foreign exchange reserves. In the 2026 fiscal year, for example, India's gold import bill surged to a record $71.9 billion, even though the actual volume of gold imported fell. This highlights how volatile global prices can inflate the import bill, regardless of domestic demand, making the economy vulnerable.
The Solution Sitting in Lockers
The paradox is that while India spends billions importing gold, an enormous amount already sits within the country. Estimates suggest that Indian households and institutions hold between 25,000 and 30,000 tonnes of gold, much of it as jewellery and bars stored in lockers. This idle gold is a non-productive asset; it doesn't generate income or contribute to economic activity. To address this, the government launched the Gold Monetisation Scheme (GMS) in 2015. The objective was simple: encourage people to deposit their idle gold with banks, earn interest on it, and bring this metal into the formal financial system. The deposited gold could then be loaned to jewellers, reducing their need to use imported gold.
Why the Original Scheme Failed to Shine
Despite its sound logic, the GMS has seen a tepid response. Since its launch, the scheme has only managed to mobilise a tiny fraction—around 39 tonnes—of the country's vast household gold reserves. Several factors contributed to this. For many Indians, gold is not just an investment but a powerful emotional and cultural asset, often passed down through generations as heirloom jewellery. The idea of melting down these cherished items for a modest interest rate of around 2.5% was a significant psychological barrier. The process was also seen as cumbersome, requiring depositors to visit specific centres for purity testing before their gold could be accepted. Ultimately, a lack of trust and incentives that weren't compelling enough to overcome deep-seated cultural habits kept participation low.
What a Revamped GMS Might Look Like
Recognising these shortcomings, there is growing discussion around a revamped GMS, or 'GMS 2.0'. The most significant proposed change is to involve the people households trust most with their gold: their local jewellers. Under a new framework currently being considered, jewellers could act as collection agents. They would collect gold from customers, manage the initial purity checks, and then transfer it to refiners and banks. To encourage their participation, jewellers may receive an incentive or commission, potentially around 0.75% to 1% of the gold's value. This model leverages the existing trust and relationships between customers and jewellers, which banks were unable to replicate.
The Direct Path to Lower Imports
If a jeweller-led model proves successful, it could create a circular domestic gold economy. When a customer deposits old jewellery, it can be refined and made available as bullion for other jewellers to use in creating new pieces. This directly substitutes the need for imported gold. By unlocking even a small percentage of the estimated 25,000 tonnes of idle gold, India could substantially increase its domestic supply. This would ease the pressure on the CAD and reduce the country's vulnerability to global gold price shocks. Essentially, instead of spending foreign reserves to buy gold from other countries, India would be putting its own existing wealth to productive use. The success of such a scheme hinges on building a transparent, trustworthy, and convenient system that respects the cultural significance of gold while offering a clear financial benefit.
