As rupee continues to breach multiple record lows, pressure on India’s balance of payments is growing. To protect foreign exchange reserves and help stabilise trade balance, Prime Minister Narendra Modi has urged people to cut down on gold purchases.But if not buying new gold, could household gold be turned into working capital instead?PM Modi’s call has brought fresh attention to an old issue, with major bullion and jewellery bodies once again suggesting steps to the government and the Reserve Bank of India (RBI) to reduce gold imports, use more household gold, and better manage how imported gold is used.Their proposals include limiting imported gold mainly for jewellery exports, bringing jewellers into gold monetisation schemes, making gold metal loans (GML) work more like bank cash credit, and reducing tax on interest earned from gold deposits, ET reported.Meanwhile, India’s gold imports jumped 24% to a record $71.9 billion in 2025-26, with more than 721 tonnes imported during the financial year.What are the proposals:Under the system proposed by the Precious Metals Refineries Forum (PMRF), imported gold would be channelled as one-year gold metal loans (GML) for jewellery exporters, while gold collected from household deposits, once refined locally, would be used to meet domestic demand through jewellers and retailers.The model suggests that depositors could earn 2-2.5%, with GML interest rates set at around 3-4%.Industry players cited by ET have pointed out that some tax changes will be needed to make this work, especially when physical gold is converted into electronic gold receipts (EGR).“The 3% notional loss of GST amount on conversion puts off customers. The government can always recover the tax when EGR is converted back into physical gold for selling. Concessions on capital gains when deposit is encashed on maturity along with income tax relief on accrued interest could be considered,” James Jose, president of PMRF told the financial daily.Why past gold schemes failed Many in the industry believe earlier gold monetisation schemes did not succeed because jewellers were not properly included and because gold deposits and loans did not work together like a banking system. Without that, institutions accepting gold deposits face major risks from price swings and currency changes.This is why trade bodies are calling for a more complete system with bank support, secure vaults in multiple locations, renewable GMLs like working capital, and proper collateral safeguards.Indian households are estimated to hold over 30,000 tonnes of gold, but despite repeated discussions during times of trade deficit and capital outflows, there is still no strong institutional system to bring this gold into the formal economy.Commenting on why earlier schemes did not work, Rajesh Rokde, chairman of All India Gem and Jewellery Domestic Council (GJC) said, “I feel the schemes did not take off because jewellers were not part of them. About 10-20% of the gold with families would be in bullion form. Most don’t sell, expecting prices to rise. If some gold can be tapped, if necessary purified and converted into digital gold in a system where jewellers are involved, imports would dip significantly,” According to one representation, collection and purity testing centres (Cptcs) and related agencies have said that collected gold can be processed within 48 hours before being moved by logistics firms to secure bank-approved vaults.Sources said members of the Indian Bullion and Jewellers Association (IBJA) held discussions with central bank officials last week on exports and monetisation, though the IBJA spokesman declined to share details.
