Vast Untapped Wealth

Nilesh Shah, Managing Director of Kotak Mahindra Asset Management, likens India to a 'kasturi animal'—rich in wealth but failing to harness it. His estimate points to nearly $700 billion passively held by households, a figure surpassed by broader market estimates projecting Indian household gold holdings above $5 trillion by early 2026. This sum is about 125% of India's projected nominal GDP for the fiscal year ending March 2026, and it greatly exceeds total Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) inflows, which were around $81 billion for FY2024-25 FDI alone. This dormant capital, mostly jewelry, coins, and bars, represents a significant missed opportunity. Gold now accounts for about 65% of non-property household wealth and 175% of combined bank deposits and equity. However, gold-backed lending is growing fastest in retail credit, signaling a slow shift toward recognizing gold as a financial asset.

Gold Imports Strain Economy

India's strong cultural preference for gold, seen as a safe haven, drives consistent annual imports averaging around 1,000 tonnes. This significantly impacts the country's balance of payments, with gold imports contributing an average of 10% to domestic imports since 2009. Gold imports hit $51.8 billion in FY2024-25 and $69 billion in April-February 2025-26, widening the trade deficit to $310.60 billion during that period. Gold is India's second-largest commodity import after crude oil.

Why Monetization Efforts Failed

Past government efforts to monetize this idle gold, such as the Gold Monetization Scheme (GMS) launched in 2015, have largely failed. The GMS had gathered only 0.9 tonnes by January 2016. Reasons for limited success include unattractive interest rates, lack of transferable security, and issues with participant trust and transparency. This persistent reliance on gold imports strains foreign exchange reserves and worsens the trade deficit, a recurring challenge in India's economic management. Converting savings into physical gold is effectively an 'export of household capital,' meaning wealth isn't channeled into productive domestic investments like manufacturing or infrastructure.

Unlocking Gold: A Path to Growth

Despite these challenges, India's economic outlook remains positive, with Goldman Sachs forecasting 6.9% real GDP growth for 2026 and the UN projecting 6.6%. However, continued gold imports and global geopolitical risks affecting oil prices pose challenges. Nilesh Shah anticipates the Indian rupee could weaken to 100 per dollar, a move he views as manageable if gradual. Unlocking the $5 trillion gold hoard is crucial for India's economic strategy. Developing innovative financial instruments and infrastructure could turn this 'frozen' capital into a dynamic resource, fostering investment-led growth and reducing reliance on external funding.