Gold means everything to us. We offer it at weddings, lock it in bank lockers, pray to it on Dhanteras, and see it as the peak of financial security. Gold is so ingrained in our culture that even thinking about it can seem like committing an act of disloyalty, if not being impolite.
And here comes the awkward reality: our image for gold is draining the nation of its lifeblood. And as fellow Indians concerned about the future of our nation, we need to talk about it.
The Numbers That Should Worry You
India is the world’s second-largest gold-consuming country. Yearly, India imports anywhere from 700 to 900 tonnes of gold, translating to $35-$45 billion USD yearly. To put things into context, that amount is higher than our import bills of edible oils, fertilisers, and some other commodities.
Here is why gold hurts the economy badly:
- India holds approximately 25,000 tonnes of gold stored in homes and temples – the largest private gold deposit in the world. It remains there. Idle. Unproductive. Employing nobody.
- The gold imports have been among the major causes of widening India’s Current Account Deficit (CAD). The bigger the CAD, the weaker the rupee. A weakening rupee leads to increased prices for imports, whether it be crude oil or consumer electronic goods.
- As per 2022-23, gold ranked as the second-highest import item after crude oil in India. Essentially, we use foreign currency earned hard by the Indian people to procure something that will remain idle at home.
Dead Capital: The Essential Obstacle of Physical Gold
There is a term in economics called “dead capital” – wealth which may exist but cannot be used to create value. Physical gold which is kept in Indian homes is probably the biggest dead capital on Earth.
Whenever one deposits cash in a bank, banks lend the money to generate growth. Companies grow, jobs are created, and economic activities happen. Whenever one invests money in stocks or mutual funds, money goes to firms which use it to create roads, produce things, and pay salaries. Even the much-defamed real estate industry generates rents and job opportunities through construction.
Physical gold creates no value; it just sits, generates no yield, no jobs, no innovation.
It is ironical that Indians save money by keeping physical gold, while actually depriving their children of an economy to survive in.
The Macro Effects: What Your Purchase of Gold Does to the Country
Consider the entire process that unfolds when you visit a jeweller and purchase 100 grams of gold:
- Demand for imports: Most of the gold used in the country is imported since it is not mined locally. Your gold demand increases import requirements.
- Weakening of rupee: The number of dollars leaves India, creating a higher demand for dollars and thus weakening the currency in relation to the US dollar.
- Inflation effects: With a weaker currency, all imports become more expensive – fuel, drugs, electronics, industrial machines.
- Budget effects: The government cannot collect GST and taxes on custom duties, which would happen if the funds were used elsewhere. Also, the deficit of trade increases.
- Reduction of other investments: All rupees spent on gold do not contribute to other investments, such as stocks, bonds, and startups.
Multiply by 1.4 billion, and you get an idea of what an ingrained habit might be doing to the economy.
“But Gold Is a Safe Haven!” – Denying the Arguments
“Gold is a border against inflation.” To some extent, yes. In very long durations, gold retains its purchasing power, but so does a well-structured portfolio of stocks, which also generates a return above the inflation rate. While gold just preserves, equities accumulate.
“I can always liquidate it.” Not for the typical Indian family. Any sale of gold ornaments will invite 20–30% loss due to making charges immediately. Moreover, it is way less liquid compared to a mutual fund, which takes only 24-48 hours for redemptions.
“It is part of our culture.” Culture keeps on evolving. We stopped using ox-carts since there was something else better than that. The same sense of prosperity and affection can be preserved by modern instruments without burdening the nation.
“The economic system may collapse.” This is the last hope of those who support gold. If an economy is strong enough for the sale of gold, then even your bonds and equity will function as they should. Even if the world ends up falling apart, gold bars won’t help much either.
Alternatives: All that is Good about Gold, But Not the Downside
Fortunately, there are several alternatives available that give you all the positive features of gold, without any of the associated drawbacks.
- Sovereign Gold Bond (SGB) – The Smartest Alternative
The Sovereign Gold Bond (issued by the Reserve Bank of India) is, perhaps, the best gold investment product that can be offered to the retail investor in India.
- Sovereign Guarantee from the Government of India – Zero Counterparty Risk
- Price tied to gold price – You make all the profit of rising gold price
- 5% interest paid annually in addition to gold price appreciation
- GST-free, making-free and storage-free investment product
- Tax-Free Capital Gains if held till maturity period (8 Years)
- Does not require import of gold – No dollars are moved out of India; the government simply issues bonds.
When you purchase SGB, you receive all the advantages of owning gold, but the money remains inside India’s financial system.
- Gold ETFs and Gold Mutual Funds
Gold Exchange Traded Funds and gold mutual funds follow the gold price and can be traded on stock exchanges, just like other stocks.
- The requirement of importing the actual gold for your personal investment is completely eliminated (the ETF companies handle this efficiently in large quantities)
- Very high liquidity – can be sold within seconds on the stock market
- No making charge, no risk of storage, no locker charges
- Investments of as little as ₹500 can be made in gold funds through SIP
- Digital Gold
Apps such as MMTC-PAMP, Augmont, and SafeGold enable you to purchase verified 24K gold as little as ₹10.
- Gold is kept in secure vaults while being owned by you digitally
- May be converted into physical gold coins when required
- There is less friction involved compared to purchasing from a jeweler
- There is some physical import involved, though through aggregation and economy, there will be less wastage
Sovereign Gold Bonds, in contrast, are better for pure savings. However, digital gold has applications if one wants physical gold at some point in the future for a ceremony.
- Equity Mutual Funds & Index Funds – Long-term Game Winner
In case your objective is not only asset appreciation but asset creation, then index funds investing in Indian equity indices such as the Nifty 50/Sensex have historically generated a 12-15% CAGR during 15-20 years compared to gold, which would have generated an 8-10% CAGR over the same time period.
Nifty 50 index went from around 1,000 in 1999 to over 22,000 in 2024. Gold increased by around 10x during the same time. The index grew 22x.
Every rupee invested in Indian equities is a rupee supporting India’s businesses and creating employment for Indians.
- The RBI’s Strategy – State Actions That Make a Difference
It must be said that the Reserve Bank of India does keep gold as part of its reserves, but in an intelligent manner, with calculated percentages, to guard against the entire balance sheet of the country. This is entirely different from the situation of a family storing up physical gold just because of tradition.
Conclusion: Institutions that do trust gold also make wise use of it.
A Word About Weddings and Gifts
Here’s where the pushback will be strongest, but it’s also most justified. Indian weddings have no use for gold in its economic sense; they need it because it represents culture, status, and love.
Just to clarify,
- The SGBs can be gifts too. You can give Sovereign Gold Bonds as gifts and put it in the name of someone else, who will receive all the benefits of gold appreciation along with yearly interest returns. A much better gift than that necklace.
- The making charge on the jewellery is the fee you pay to express your sentiment. If you can express your sentiment in some other way, your economic incentive for buying jewellery diminishes greatly.
- Nobody wants you to remove gold completely from your investments. Having 5%–10% invested in gold-related products like SGBs, ETFs makes perfect sense. What’s unreasonable is having 60%–80% of the total savings invested in physical gold.
What a Responsible Indian Investor Looks Like
| Old Thinking | Responsible Thinking |
| Buy gold jewellery for savings | Buy Sovereign Gold Bonds |
| Store wealth in a locker | Invest in diversified equity + SGB portfolio |
| Gift gold at weddings | Gift SGBs or equity mutual fund units |
| Physical gold = security | Productive assets = security and prosperity |
Closing Remarks
The time for decision has come. The country stands at a crossroads. India is today the fifth-largest economy in the world and hopes to be number three. The country has a youthful population, a booming middle-class, and dreams bigger than itself. But it is also carrying the weight of a 25,000 ton anchor in terms of dead gold, that costs millions of dollars worth of foreign exchange annually and devalues the Indian currency.
This purchase of gold bars may seem non-political to individual Indians. However, collectively, it has a huge impact on the rupee, the trade balance, and the economy of the country as a whole.
It’s time to make India your priority. Not your locker.
by Nikhil
