As the rupee continues to hit multiple record lows, pressure on India’s balance of payments is increasing. To help protect foreign exchange reserves and stabilize the trade balance, Prime Minister Narendra Modi has urged people to cut back on gold purchases.But can domestic gold be converted into working capital if new gold is not purchased?PM Modi’s call has drawn fresh attention to an old issue, with leading bullion and jewelery bodies once again suggesting the government and the Reserve Bank of India (RBI) take steps to reduce gold imports, use more domestic gold and better manage the use of imported gold.ET reported that his proposals mainly include limiting imported gold for jewelery exports, bringing jewelers into gold monetization schemes, making gold metal loans (GML) work like bank cash loans and reducing taxes on interest earned from gold deposits.Meanwhile, India’s gold imports rose 24% to a record $71.9 billion in 2025-26, with more than 721 tonnes imported during the fiscal year.What are the proposals:Under the system proposed by the Precious Metals Refineries Forum (PMRF), imported gold will be channeled as one-year gold metal loan (GML) to jewelery exporters, while gold collected from domestic deposits, once refined locally, will be used to meet domestic demand through jewelers and retailers.The model suggests that depositors can earn 2-2.5%, with GML interest rates set at around 3-4%.Industry players quoted by ET have pointed out that making this work would require some tax changes, especially when physical gold is converted into electronic gold receipts (EGR).“The estimated loss of 3% of the GST amount on conversion irks customers. The government can always recover the tax when EGR is converted back into physical gold for selling. “Concession on capital gains on redemption of deposits on maturity as well as income tax relief on interest earned may be considered,” PMRF Chairman James Jose told the financial daily.Why did previous gold schemes fail? Many in the industry believe that earlier gold monetization schemes did not succeed because jewelers were not properly involved and because gold deposits and loans did not work together like the banking system. Without this, institutions accepting gold deposits face huge risks from price fluctuations and currency changes.This is why trade bodies are demanding a more complete system with bank support, secure vaults at multiple locations, working capital such as renewable GML and appropriate collateral security measures.It is estimated that there is over 30,000 tonnes of gold in Indian households, but despite repeated discussions on trade deficit and capital outflows, there is still no strong institutional system to bring this gold into the formal economy.Commenting on this, Rajesh Rokade, chairman of the All India Gem and Jewelery Domestic Council (GJC), said, “I think the plans did not take off because jewelers were not part of them. About 10-20% of the gold held by households would be in bullion form. Most do not sell in the hope of prices rising. Some of the gold can be harnessed, purified if necessary and digitized in that system. If gold can be converted into gold where jewelers are involved, the imports will reduce significantly.” According to a representation, the Collection and Purity Testing Center (CPTC) and related agencies have said that the collected gold can be processed within 48 hours before being safely transported by logistics firms to bank-approved vaults.Indian Bullion and Jewelers Association (IBJA) members discussed exports and monetization with central bank officials last week, sources said, though an IBJA spokesperson declined to share details.
