India is touted as a US $ 4 Trillion economy and world’s fastest growing. The nominal GDP per capita below $ 3,000 places the country at a low 145 out of 200 nations.

Worse, the country has the highest absolute number of people living in ‘extreme poverty’, with reports indicating approximately 234 million people in this category as of late 2024. Even now, 800 million receive every month five kilograms of wheat/rice as free ration.

In terms of Human Development Index, India ranks 130th out of 193 countries and in Global Hunger Index 102nd out of 123 countries. These disconcerting numbers contrast with another set of data that suggest India is shining – gold and silver import.

According data from the Directorate General of Commercial Intelligence and

Statistics, India spent about $ 480 Billion on gold import and 38.5 Billion on silver import between 2014-15 and 2024-25. Add estimated import of gold and silver in 2025-26 and the total foreign exchange spent zooms to $ 600 Billion in 12 years.

Along with crude oil – a necessity - massive gold import is a significant contributor to India’s growing goods trade deficit. At a time when overseas remittances are slowing and FDI (foreign direct investment) inflows are less than outflows, burgeoning goods trade deficit results in Rupee depreciation that in turn makes imports more expensive and fans inflationary tendencies.

The moot question is whether the country with pathetic socio-economic status of a vast majority of population can afford to splurge in import of admittedly non-essential, demerit goods like gold to the extent (in volume and value terms) seen in recent years.

The government says it has introduced measures such as Gold Monetization

Scheme, Exchange Traded Funds and Sovereign Gold Bond Scheme to reduce the demand for physical gold and to mobilize idle domestic gold so that a part of demand is met from locals stocks rather than fresh imports, thereby reducing external vulnerability and price pressures.

Data suggest none of this has been achieved to any notable extent. Worse, the government lowered the customs duty on gold import from 15 percent to 6 percent in July 2024 justifying (the unjustifiable) as a relief measure for consumers.

Reduction in duty has not had any lasting impact on domestic prices or on domestic demand. In reality, there is demand destruction at the retail level given the price-elasticity of gold demand under the current economic conditions. Retail buyers with limited budget now go in for lightweight and lower carat gold jewellery.

On the other hand, reduced customs duty on gold has meant a massive loss of revenue for the exchequer. Who is benefiting from this revenue sacrifice remains a mystery.

Some interest groups argue that restricting gold import would encourage illegal import often termed ‘smuggling’. This argument is specious. With technology-led surveillance and stricter border control mechanisms at the disposal of enforcement agencies, the possibility of large-scale illegal import of gold is remote. The risk-reward profile does not encourage such misadventure.

The scare or bogey of smuggling is often raised by institutions that represent overseas suppliers who have a vested interest in dumping as much gold as possible on India and transfer Indian wealth in dollars overseas. The real beneficiaries of India’s questionable polices for the gold sector are the overseas supplier nations.

Gold is not a wealth-generator but a hedge against inflation and uncertainties. The value of gold is notional as it does not generate any return. Its prices are as vulnerable to the downside as much as to the upside. History is proof.   

It is for the Indian policymakers to recognize and realize the adverse effects of unchecked gold import and low customs duty. The country deserves a strict policy regime that seeks to maximize revenue for the exchequer and same time, ensures end-to-end transparency in the supply chain including an audit trail relating to source of funds.

For middle-class households, the rising value of gold is notional. Price rise means nothing unless the gold jewellery is sold and value realized; and no one generally sells family jewellery to profit from higher market prices, except in case of scrap sales.

Who says India is a poor country? We spend Billions of dollars on non-essentials year after year.