A recent report by the State Bank of India (SBI) is advocating for a comprehensive, long-term gold policy in India, emphasizing the need to define gold's role in the economy and how it is perceived by Indian consumers. The report, authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, highlights India's deep-rooted cultural affinity for gold, its significance as an investment asset, and its function as a hedge against inflation. These factors, combined with the ongoing global gold rush, make it crucial for the country to establish a clear and forward-looking gold policy.
The SBI report underscores the contrasting views on gold between Eastern and Western economies. In the West, gold is often regarded as public property shaped by historical conflicts and economic instability. Conversely, in Asian countries like India, Japan, Korea, and China, gold remains a personal asset and a symbol of financial security. This cultural connection has sustained Asian households as net buyers of gold, even as Western attitudes have evolved. Total consumer demand for gold in India was 802.8 tonnes in 2024, placing India second to China, whose consumer demand was 815.4 tonnes.
India's current approach to gold focuses on reducing demand and recycling existing gold for productive use. The SBI report suggests expanding these efforts toward monetization strategies that positively influence future investments. The report also proposes integrating gold into broader financial sector reforms, potentially through instruments like gold-backed pension schemes, aligning with India's long-term goal of capital account convertibility.
The surge in gold prices in 2025, driven by geopolitical tensions, economic uncertainty, and a weakening US dollar, has further complicated the situation. Gold prices have increased by over 50% year-to-date in 2025. While the Reserve Bank of India's (RBI) gold reserves have increased in value, rising $27 billion in FY26 after a $25 billion increase in FY25, domestic demand has weakened, and import dependence remains high. India's gold demand fell 16% year-on-year in Q3 2025, with jewellery sales dropping 31%, according to the World Gold Council. Despite this, India remains the world's second-largest gold consumer.
The correlation between gold prices and the USD-INR exchange rate has strengthened to 73%, indicating that rising gold prices exert downward pressure on the rupee. This close relationship is due to India's heavy reliance on gold imports, which account for approximately 86% of the total supply. This import dependence puts pressure on the current account deficit, and the government faces fiscal losses on outstanding sovereign gold bonds due to the sharp rise in gold prices.
The SBI report also highlights the increasing financialization of gold. Inflows into gold ETFs have risen significantly, with assets under management reaching ₹901.36 billion as of September 2025, a 165% increase year-on-year. Gold-backed lending by scheduled commercial banks has also expanded, reaching ₹3.06 lakh crore by March 2025. The Pension Fund Regulatory and Development Authority (PFRDA) is considering allowing exposure to commodities like gold and silver within pension fund portfolios, potentially strengthening gold's role in India's long-term investment landscape.
The report emphasizes that a long-term national gold policy should harmonize how gold is treated in national income accounts, the balance of payments, and the capital account to eliminate inconsistencies in accounting practices. It also suggests liberalizing gold and silver imports, including easing rules for Non-Resident Indians (NRIs), and introducing forward trading to allow price hedging to reduce smuggling and deepen the formal market. The SBI report highlights the need for a comprehensive approach that considers the economic, cultural, and geopolitical importance of gold, as well as the views of the gold industry, which provides significant employment. China already has a national policy on gold with a specific purpose and a comprehensive approach to reshaping how gold is traded, stored, valued, and used.
