India faces a tough economic challenge to satisfy its voracious appetite for gold and preserve its foreign exchange (forex) reserves. Historically, the government has tried to reduce demand by levying high import duties, but industry leaders are increasingly making a case that the real solution is not in reducing consumption but formalizing the domestic gold recycling ecosystem.
Huge imports of gold, a dollar-denominated commodity, result in a huge outflow of foreign currency which puts pressure on the Indian rupee. Industry experts say aggressive “demand cuts” can often backfire, triggering gray market smuggling and hurting the key employer, the jewelry sector. The focus, however, is shifting to “Urban Mining” – bringing idle gold lying in Indian households back into the formal economy. It is estimated that Indian households hold gold of more than 25,000 tonnes. Even a small part of it being unlocked through efficient recycling could significantly reduce the need for fresh imports.
In this regard, the industry is demanding a more robust Gold Monetization Scheme (GMS) and the establishment of more National Accreditation Board for Testing and Calibration Laboratories (NABL)-accredited refineries. India could develop a circular economy by helping consumers swap “old gold” for new jewellery or digital assets without hefty tax penalties. The change would help the country satisfy its cultural and investment demand for the metal while also stopping the drain of foreign exchange. Ultimately, the consensus among trade bodies is that the route to long-term currency stability is to treat gold as a liquid financial asset rather than a simple import commodity.
