India’s Gold Import Dependence and the Rising Shift Towards Financial Gold

Gold Import Latest News

• Rising investor preference for gold, especially through gold ETFs, has renewed debate on India’s gold import dependence and its macroeconomic implications.

Why India Imports So Much Gold

• India is one of the world’s largest consumers and importers of gold, despite producing negligible quantities domestically. 
• This structural dependence is driven by a combination of cultural, economic, and financial factors.
• First, cultural and social factors play a major role. 
  • Gold is deeply embedded in Indian traditions, especially weddings, festivals, and religious ceremonies. 
  • It is viewed not merely as a luxury good but as a symbol of prosperity, security, and social status. Household demand remains stable even during economic slowdowns.
• Second, gold as a store of value explains persistent demand. 
  • In many Indian households, particularly in rural and semi-urban areas, gold is preferred over financial instruments due to limited financial literacy, distrust of formal markets, and ease of liquidity. 
  • Gold is often treated as an inter-generational asset.
• Third, macroeconomic uncertainty and inflation hedging increase gold demand. 
  • During periods of high inflation, currency volatility, or weak equity market performance, investors shift towards gold as a safe-haven asset. 
  • Historically, whenever equity returns are sub-optimal or global uncertainty rises, gold demand in India increases.
• Fourth, limited domestic alternatives for long-term savings also contribute. 
  • Pension penetration remains low, and risk-averse households often find gold more reliable than equities or debt instruments. 
  • This structural preference results in sustained imports, adversely impacting India’s current account balance.

‹ ›

Steps Taken by the Union Government to Curb These Imports

• Given the adverse impact of gold imports on the current account deficit (CAD) and foreign exchange reserves, successive governments have adopted multiple policy measures.
• One key step has been the imposition of customs duties on gold imports. 
  • Higher import duties aim to discourage excessive physical gold consumption and reduce outflows of foreign exchange. 
  • However, such measures have also led to smuggling in the past, indicating policy limitations.
• Another important intervention is the promotion of financial gold instruments. 
  • Schemes such as Gold Exchange Traded Funds (ETFs) and Sovereign Gold Bonds (SGBs) encourage investment in paper gold instead of physical gold. 
  • These instruments reduce import pressure while providing exposure to gold prices.
• The government has also introduced Gold Monetisation Schemes, allowing households and institutions to deposit idle gold with banks, thereby mobilising domestic gold stocks and reducing fresh imports.
• Further, efforts have been made to deepen financial markets and diversify investment avenues, including mutual funds, digital payment systems, and small savings schemes, to gradually shift household savings away from physical assets.
• Despite these measures, demand moderation has been limited, indicating that gold consumption in India is influenced more by structural and behavioural factors than by short-term policy interventions.

News Summary

• Indian investors witnessed a difficult year in 2025, with benchmark equity indices delivering negative returns and overall market turnover declining. In contrast, gold ETFs saw a sharp rise in investor interest.
• Net inflows into gold ETFs surged to Rs. 25,566 crore between January and November 2025, nearly three times higher than the corresponding period in 2024. 
• Gold ETFs accounted for 3.2% of total net inflows into open-ended mutual fund schemes, the highest share in recent years.
• Several factors explain this trend. Global uncertainty triggered by trade tensions and geopolitical instability has increased demand for safe-haven assets. 
• Additionally, central banks across the world have been increasing gold reserves to diversify away from the US dollar, indirectly supporting global gold prices.
• Gold prices witnessed a historic rally, rising sharply over the last year, while Indian equity markets delivered muted or negative returns. 
• This relative performance gap encouraged portfolio reallocation towards gold-linked instruments.
• Experts caution that while long-term fundamentals for gold remain strong, short-term gains could moderate. 
• Some analysts describe the surge in gold ETF investments as partly driven by “fear of missing out” (FOMO) behaviour among retail investors.
• Overall, the outlook for gold demand in India will depend on future equity market performance, global monetary conditions, US dollar strength, and central bank policies.

Source: TH