The Reserve Bank of India’s (RBI) gold reserves touched 794.64 metric tonnes in fiscal 2023. This is an increase of nearly 5 per cent over fiscal 2022, when it held 760.42 metric tonnes of gold.
- The recent purchases have swelled RBI’s total gold reserve to just under 800 tonnes, marking a new record for the central bank.
- It acquired about 10 tonnes of gold in the March quarter, placing it among the top five gold buyers in that period.
India’s Gold Market –
- The data on gold industry in terms of its’ size, direct contribution to GDP and employment, is not easily available.
- However, as per the World Gold Council report(released in January 2023) —
- India is the second largest gold jewellery consumer in the world.
- In 2021, India bought 611 tonnes of gold jewellery, second only to China (673 tonnes).
- The report further highlighted that gold jewellery exports in India have grown from US $7.6 billion in 2015 to US $12.4 billion in 2019.
- This report also highlighted that rural India is the largest consumer of gold jewellery occupying 55-58 per cent of the market share, and the middle class is the primary gold consumer in India.
Impact of Gold on the Economy –
- Business/employment opportunities —
- Gold is used as a raw material for jewellery fabrication and making coins. This in turn creates business opportunities, value addition and employment.
- The industry provides employment to a significant number of people in India, including miners, artisans, and retailers.
- Current account deficit (CAD) —
- India is the world’s second-largest importer of gold, which contributes to the country’s current account deficit.
- The import of gold requires foreign currency, which puts pressure on the country’s foreign exchange reserves.
- It should be noted that the gold imports are also used for export of gold jewellery, it has the potential to mitigate the adverse impact of imports on CAD.
- Inflation —
- Gold is often used as a hedge against inflation, which means that during times of high inflation, demand for gold increases.
- This can lead to an increase in the price of gold.
- Savings and investments — Gold is considered a safe-haven asset and a store of value in India, which means that many people use it as a means of savings and investment.
Financialisation of Gold –
- A report by NITI Aayog estimated that around 23,000-24,000 tons of gold lies unused with the households and religious institutions throughout the nation.
- It is with the view to monetise this unutilised gold that the Government introduced the Gold Monetisation Scheme (GMS) in the Union Budget, 2015.
- The gold accumulated under the GMS was to be used productively and profitably, by banks through the Gold (Metal) Loan (GML).
- GML was introduced as a low interest rate financial product for meeting inventory financing needs of the borrower.
- The Government had launched the Sovereign Gold Bonds Scheme (SGBS) in November, 2015. The main objectives of this scheme were to reduce the demand for physical gold and shift a part of the gold imported every year for investment purpose into financial savings.
How much gold has RBI bought?
- The RBI bought 34.22 tonnes of gold in fiscal 2023; in fiscal 2022, it had accumulated 65.11 tonnes of gold.
- Between the fiscal year ended June 30, 2019 and fiscal 2023, the RBI’s gold reserves swelled by 228.41 tonnes. The RBI used to follow the July-June accounting year in 2019.This was changed to April-March starting 2020-21.
Why is RBI buying so much gold?
- As part of the diversification process, the RBI has been adding gold to its reserves.
- This change in strategy has been driven by negative interest rates in the past, the weakening of the dollar and growing geopolitical uncertainty.
- Gold is a safe asset to have as it has liquidity, has an international price which is transparent, and as it can be traded anytime. So, central banks are buying gold.