Locker to exchange: How India can become a global gold hub

India’s relationship with gold is underpinned by trust, emotion, tradition and economic behaviour rolled into one. This trust ritualistically extends to the practices around yellow metal.

Consider the scale. India imports 700–800 tonnes of gold every year, worth about USD70 billion–USD95 billion. Yet, the country has almost-nil direct influence on how the metal is priced and benchmarks sit elsewhere on terms set outside. Size of consumption and statements of ambition belie our peripheral status in market structure.

This is not due to lack of capability. It is because India couldn’t build the market architecture required. The international bullion exchange at GIFT IFSC and the domestic bullion exchange framework were meant to change this – to move from negotiated to discovered prices, from opacity to structure, and to bring bullion more firmly into the mainstream as a financial security through the mechanisms of Electronic Gold Receipts (EGRs) or Bullion Depository Receipts (BDRs).

That architecture now exists. Trading, clearing, vaulting and regulation are in place. Settlement cycles have been demonstrated. The problem is no longer proof of concept; it is a dilemma at the fork in the lane.

The explanation lies in habit. The consignment route, introduced in late 90’s, for gold imports through banks offers deferred pricing, embedded financing and familiarity; and it persists out of familiarity and convenience, not necessarily aptness. Convenience, however, has a cost. Pricing and premiums are negotiated, financing is embedded, risks are shifted and duty arbitrages tempt buying and stocking. And imports are stubborn.

Exchange reforms

This suggests a simple point: it’s not a problem to be managed at the margins. It requires a structural response. Exchange reform is that response — not by suppressing demand but building synergies upon consumption flows to become a gold-trading hub and enabling a two-way flow of bullion.

Imports, however, are only half the story. India holds one of the world’s largest privately owned stocks of gold, much of it sits idle in lockers. Social patterns are changing. More senior citizens live independently and are less comfortable holding gold articles, an increasing trend and an opportunity for monetisation. Recycling will not rise because people fall out of love with gold; it will rise if an environment is created with appropriate products and services. Exchanges can be a strong pillar to invite gold out of cupboards — with trust, transparency and fair terms of recycling.

Well-designed instruments within the exchange framework can turn this change into advantage. EGRs and BDRs can anchor digital gold savings without removing the comfort of physical ownership and accelerate credit growth with vaulted collaterals, remove purity disputes and let households unlock value without distress sales. A collateral benefit will be that jewellery which will then be bought more for what it is — design and craftsmanship — rather than as the only reliable proxy for owning gold driving our ambition to become the jeweller to the world.

But the exchange reforms, after some bold initial steps such as the formation of India International Bullion Exchange (IIBX) at GIFT IFSC, are stagnant. There is a Tamil saying:* “தேரை இழுத்து தெருவில் விட்டது போல” —we have pulled the chariot out, only to leave it in the street. The difficult part is done; the journey is not completed.

Markets do not change unless there are incentives to change or costs for status quo. This is also a coordination problem. The parts exist, but the system does not converge. Multiple institutions have enabled pieces, but no single authority drives the outcome end-to-end. When everyone owns a part, no one owns the result.

IIBX for instance has demonstrated many milestones since inception on delivery, settlement, KYC process of qualified jewellers, suppliers and so on. In FY25, it supplied and delivered over 90 tonnes of gold and 200 tonnes of silver seamlessly when the opportunity was granted under CEPA (Comprehensive Economic Partnership Agreement). Yet, imports are anchored on the consignment model through banks who have little incentive to switch to bullion flows through the exchange. Such a change is structural and needs a mandate or an incentive to create a level playing field.

The final cut

The bullion market is finely tuned to small economics. A calibrated nudge — duty and GST neutrality between consignment and exchange routes, clarity around GST for bullion bars moving in and out of EGR vaults, phased routing of defined import categories through IIBX and domestic exchanges — can shift behaviour without disruption.

Above all, adoption must begin at home. If policies are not designed to make these exchanges meaningful for our own institutions and banks, how realistic can it be to expect global bullion players, with entrenched alternatives, to trust and use them. Credibility cannot be taken for granted, it has to be demonstrated.

India should address a few core policy decisions one way or the other. GST clarity on bullion bars for EGRs, a mandate or a meaningful incentive for banks to use IIBX as the preferred channel, are foundational. All else in terms of policies and ease of regulations will be peripheral; as the saying goes, “will circumambulate the temple but not worship”.

The policy choice is clear: remain with a comforting patchwork of legacy practices, or transition to a futuristic market structure that serves both the macroeconomy and the households that own most of the gold. Shifts in consumer behaviour are rarely demanded; they have to be firmly guided and quietly re wired as India’s own journey with demat, UPI, etc. has shown. Bullion exchanges sit in that category. India’s gold passion should not be misread as resistance to change. Change will have to be guided with conviction. The chariot is in the street; it now needs direction.

(The author is a Chartered and Cost Accountant with four decades of experience in senior levels in FMCG and banking, and in bullion-related policy work, and serves as a Public Interest Director on the board of IIBX. Views expressed are his own.)

This post was first published in The Economic Times. Posted here with permission from the author.