The Billion-Dollar Habit
India's relationship with gold is legendary, but it comes at a steep price. As one of the world's top consumers, the country imports vast quantities of the yellow metal to meet demand for jewellery and investment. This isn't just a line item on a trade
sheet; it's a significant drain on the nation's foreign exchange reserves. In the fiscal year 2026, India's gold import bill hit a record $71.98 billion. This happened even as the actual volume of gold imported fell slightly, a stark illustration of how rising global prices can strain the economy. This heavy reliance on imports puts pressure on the Current Account Deficit and can weaken the rupee, making other essential imports, like oil, more expensive.
An Old Scheme's Shortcomings
This isn't the government's first attempt to solve the problem. The Gold Monetisation Scheme (GMS) was launched in 2015 with a clear objective: to bring the massive trove of idle gold held by Indian households and institutions into the formal financial system. The idea was to let people deposit their physical gold in banks and earn interest on it, much like a fixed deposit. However, the scheme never really took off. In the eleven years since its launch, it has mobilised only about 39 tonnes of gold. This is a tiny fraction of the estimated 25,000 to 34,600 tonnes sitting in lockers and temple vaults across the country. Issues like low interest rates, cumbersome procedures, and a fundamental lack of trust in parting with treasured family heirlooms kept most people away.
What’s Different This Time?
The proposed revamp of the GMS hinges on one crucial change: bringing local jewellers into the fold. Instead of asking people to go to impersonal banks, the new plan would allow trusted neighbourhood jewellers to act as collection partners. This is a significant strategic shift, acknowledging that for most Indians, the family jeweller has always been the primary point of contact for buying, selling, and exchanging gold. According to proposals, jewellers could be offered a commission of around 1% on the value of the gold they collect. By making the process more accessible and leveraging existing relationships of trust, the government hopes to overcome the psychological barriers that held back the original scheme.
The Challenge of Trust and Tradition
Success, however, is far from guaranteed. The biggest hurdle isn't logistical, but cultural. In India, gold is not just an asset; it's a symbol of security, tradition, and emotion. Many families are reluctant to have their ancestral jewellery, with its sentimental value, melted down into anonymous gold bars, which is a required step in the monetization process. There are also fears about tax scrutiny and questions about the source of the gold, which could deter many potential depositors. Building confidence that the gold will be weighed correctly, valued fairly, and that the process is transparent will be the most critical task for the revamped scheme. The government effectively discontinued the medium and long-term deposit options of the original scheme in March 2025, a sign of its poor performance, making this new attempt all the more crucial.
The Road Ahead
If the revamped scheme succeeds even partially, the economic benefits could be substantial. By creating a domestic supply of gold from existing reserves, India could significantly reduce its import bill, which would strengthen the rupee and improve the country's balance of payments. This recycled gold could be loaned to jewellers, providing them with a cheaper source of raw material than imports. However, the path is fraught with challenges that have plagued similar efforts for years. Policy instability, including frequent changes to import duties, has created uncertainty in the market. Ultimately, convincing millions of Indians to view their gold as a productive, interest-earning asset rather than just a dormant store of value is a monumental task that will require more than just a well-designed scheme; it will require a fundamental shift in mindset.
