The Shimmering Paradox

India’s love affair with gold is dazzling, but it comes with a price tag the nation pays in dollars. Every bride’s necklace, every festival bangle, and every locker filled “for security” drains foreign exchange that could be used to build roads, fund universities, or support job creation. In 2024 alone, India spent over USD 35 billion on gold imports, despite the current account deficit widening. At what point does tradition begin to weaken the nation’s economic muscle?

Gold in India is rarely bought as a market investment in the classical sense. It is an adornment that signals status, a daughter’s security in marriage, and a symbol of familial continuity. What matters more than the price per gram is how much gold a bride brings into her new home or how heavily a woman is adorned at a festive occasion.

Households may argue that this is “an investment.” Still, almost all of it is reinvested only in more gold jewellery, exchanged for new designs, and heavier necklaces swapped for lighter, trendier pieces. In most middle- and upper-middle-class settings, gold is not liquidated to buy homes, fund education, or start businesses. It rarely converts into productive economic capital; it circulates socially, not financially.

There is one exception: the lower economic strata often rely on gold for short-term liquidity through pawn shops and instant gold loans. Lacking access to formal credit, they mortgage tiny chains or bangles for emergency funds such as medical crises, school fees, or debt repayment. Here, gold serves as a form of survival credit.

However, once households move into the banking system and access non-gold personal or housing loans, their dependence on jewellery for borrowing declines. This makes gold primarily an emotional asset for the aspirational classes and a desperate fallback for the economically vulnerable.

Yet India’s emotional attachment to gold carries a macroeconomic burden. In 2024, the country imported over USD 35 billion worth of gold, making it one of the most significant components of the current account deficit (CAD). Every gram imported drains foreign exchange reserves that could support essential sectors such as energy, education, defence, manufacturing or infrastructure. Unlike petroleum, which fuels mobility and industry, gold sits idle in lockers, neither generating growth nor creating employment.

Appeals from policymakers, including past prime ministers like Manmohan Singh, asking citizens to curb gold consumption have largely fallen flat. That is because gold is rarely purchased after comparing returns with mutual funds, sovereign bonds or fixed deposits. Instead, it is acquired to uphold tradition, secure status, and provide psychological assurance. Debt-financed wedding jewellery is still considered more respectable than funding a daughter’s higher education or vocational training. Therefore, if behavioural persuasion remains ineffective, policy must intervene carefully yet firmly.

One necessary step is to reassess customs duty on gold, potentially increasing it beyond the current range toward 20–25 per cent to restrict excessive imports. Critics will argue this may encourage smuggling. While some illegal inflows may occur, they are unlikely to match the overwhelming scale of official imports unless underground networks expand drastically. India has previously adjusted tariffs in response to CAD pressures, and a phased hike aligned with macroeconomic needs is not protectionist regression; it is a pragmatic correction.

However, higher tariffs alone are insufficient. Without viable financial substitutes, public resistance will rise. Sovereign Gold Bonds (SGBs) and regulated digital gold instruments can be made more attractive through festival-linked incentives, easier redemption processes and emotional positioning, for example, “daughter’s security bonds” or “bridal SGB plans” endorsed by trusted financial institutions. If institutional alternatives begin carrying emotional credibility, physical gold may lose some of its dominance.

For lower-income families who rely on gold for emergency liquidity, state-backed microcredit facilities must provide fast, no-collateral loans to reduce dependence on pawnbrokers. Formalising and protecting gold-backed credit within banking networks can mitigate exploitation while preserving access to it.

Gold is not just a metal; it is a narrative of security, love, tradition and economic fear. But economies cannot grow if savings are frozen in jewellery that never re-enters financial circulation. As India aims to accelerate into a high-growth, high-employment economy, capital must be diverted where it can generate productivity, not just prestige.

We cannot keep confusing emotional wealth with national prosperity. If India does not begin shifting savings from gold into productive sectors, sentiment will continue to bleed the economy quietly. A confident, future-ready nation cannot afford to cling to assets that shine socially but stall financially. The question is blunt: will India continue to polish its jewellery or power its future?

Views expressed are personal. THE WRITER WRITES ABOUT POLITICS, MATERIAL CULTURE, AND ECONOMIC HISTORY