By Vivek Gupta
India’s recurring gold crises are not merely a function of consumer obsession with the yellow metal. They are fundamentally a policy failure. For decades, policymakers have attempted to curb gold imports through higher duties and restrictions, yet Indian households continue to accumulate physical gold because the financial system has failed to offer a credible, low-cost digital alternative. If India truly wants to reduce pressure on imports and the current account deficit, the answer lies not in penalising gold ownership, but in transforming how gold is held.
The first reform should be radical but simple: make demat holding charges on digital gold and sovereign gold instruments effectively zero, much like UPI made digital payments frictionless. India sits on an estimated 25,000 tonnes of privately held gold, much of it idle in lockers. If households can seamlessly convert physical gold into low-cost digital holdings with liquidity and trust, a large portion of dormant gold can enter the formal financial system.
The government must also revive and redesign the sovereign gold bond ecosystem. Earlier schemes had promise but suffered from complexity and weak participation. A fresh programme offering even a token 1% annual return can attract investors away from physical bullion. Indians do not necessarily demand high returns from gold; they demand safety, liquidity and familiarity.
Taxation policy also requires a strategic reset. For a limited period, capital gains tax on digital gold transactions should be abolished or significantly reduced compared to physical gold. Similarly, GST on digital gold instruments could be brought to zero temporarily. The objective should be clear: create a decisive policy preference for paper and digital gold over imported physical bullion.
Another overlooked issue is the high conversion cost between jewellery and monetised gold. Whenever agencies such as MMTC or refiners convert physical gold into paper-backed instruments, melting losses and processing charges discourage participation. Lowering these frictional costs through policy incentives or standardisation can significantly improve adoption.
India must also encourage recycling. Families often avoid remaking old jewellery because the process can trigger additional tax liabilities and valuation disputes. Removing capital gains implications on the remaking or recycling of old jewellery would encourage households to bring dormant gold back into circulation rather than purchasing newly imported gold.
At the same time, regulators should closely examine non-individual entities holding gold purely as an investment asset. Institutional accumulation through ETFs and similar vehicles adds pressure to imports and foreign exchange demand. Differential taxation on speculative institutional gold holdings may help moderate excessive accumulation without hurting household savers.
Finally, India should consider a one-time Gold Amnesty and Monetisation Scheme. Under such a framework, individuals could deposit physical gold for five years with complete immunity from scrutiny on past acquisition. No appreciation or interest would accrue during the lock-in period, but holders would retain the right to mortgage or liquidate holdings. At maturity, they would receive either the original value or prevailing value, whichever is lower. A similar framework could apply to silver.
India cannot tax its way out of gold dependence. It must innovate its way out. The future lies in making digital gold cheaper, simpler and more trustworthy than physical gold itself.
(Vivek Gupta is a senior journalist)
