Gold GST is down to 3 percent, and yet 24 carat gold costs north of Rs 1.1 lakh for 10 grams in India — a dramatic rise from the sub-80,000 price of gold at the start of 2025 even. Indian Institute of Management, Ahmedabad (IIM-A) Professor and chief of the IIM-A India Gold Policy Centre (IGPC) Sundaravalli says that if it feels like the Indian gold buyer is paying more than gold-investors in some other nations, there are a few reasons for it. One, India imports most of its gold from countries like Switzerland and the UAE, and pays for these imports in dollars instead of rupees. Two, the gold market here is fragmented and that means India is not able to use its status as a major importer to get better prices.
Indeed, India has been among the biggest importers of gold in the world for some decades now. Prof Narayanaswami sees an opportunity in this. If India routes all gold imports — roughly 700 tonnes a year — through the Indian International Bullion Exchange or IIBX, Prof. Narayanaswami says we could command a better price for gold as a country. "(Right now,) the countries that we are doing trade with — say, the UAE, Switzerland, China, Thailand, many of the African countries where we import gold from — they see us as a very fragmented economy (for) gold," she says. The IIBX was set up with recommendations from the IIM-A IGPC, of which she is currently the chairperson.
Prof Sundaravalli also has a suggestion for how to reduce gold smuggling in India: lease gold mines in Russia like we lease oilfields in different parts of the world. This could bring down the cost of discovering and mining gold, and increase the supply of quality ore. Once the Indian demand for gold is met through legitimate channels and at better prices — thanks to greater negotiating power that would be vested in the IIBX if all gold transactions go through it — the professor says there will be little incentive to smuggle gold. The mined gold could have a knock-on effect, through better capacity-utilization of gold refining industry and Indian golf exports, she adds.
Golden investments: In 2009 - while D. Subbarao was RBI governor - the central bank bought 200 tonnes of gold from the International Monetary Fund for about USD 6.7 billion. (AI generated image)
The IIM-A professor has listed these suggestions in her book, 'The Power of Gold.' Prefaced by former Reserve Bank of India Governor Duvvuri Subbarao, 'The Power of Gold' compares the different ways of investing in gold, how gold prices are set in India and policy frameworks around this asset class. Over a Zoom call from Ahmedabad, Prof Sundaravalli talked about the book, why gold prices are rising, whether you should invest in gold now or wait for a drop in gold prices, new gold mines in India, and how to look at early redemption of Sovereign Gold Bonds. Edited excerpts:
Twenty-four carat gold prices breached the Rs 1 lakh-per-10 grams mark for the first time in April. Since then, the price of gold has been climbing steadily. To be sure, much of this rise in gold prices mirrors global movements — with international gold prices north of USD 3740 per ounce (28.34 grams). Given this trajectory of gold prices, if somebody is looking to invest in gold, would you recommend they invest now or do you think prices are so high that they should maybe wait?
Absolutely, yes, they should invest.
Even at current prices? They are north of Rs 1.12 lakh per 10 grams for 24 K gold in Delhi as we speak…
Strongly, yes.
Do you think prices are going to go up further?
Yes. I have been asked this quite often. Even yesterday, a very close friend was asking me: What do you think? Should I invest in gold? My hunch is yes, prices are going to increase.
For some of the same reasons that you’ve cited in your book – The Power of Gold – namely global uncertainties, US tariffs, war and unrest? Or are there more factors why the price of gold could go up?
By and large, these factors.
I can demystify it further: In the post-COVID era, the amount of US dollars outside America is more than what is inside America. China is the one country which should be most worried about this. Because in China, their trade is mostly exports, very little imports. There is an inflow of US dollars, but there is very little outflow of US dollars from them… Another important factor here is our de-dollarization. India started trading with Russia and other countries in domestic currencies. When we start trading in local currency, China’s opportunities for spending the US dollar reserves which it has is further reduced. So when China found its opportunities to spend the dollar reducing, China started converting its dollars into gold. This, in my view, could have been a small trigger. When China started buying gold, then other countries also started panic-buying gold. Now, when you look at India, India did not do panic-buying. India's demand has been consistently the same. But when other countries started buying gold, gold prices in the rest of the world went up — in the London exchange, in the New York exchange, Singapore exchange, Shanghai exchange… everywhere.
When gold prices go up globally, this has got an additional impact in India. When India imports gold, whether through the banks or through the bullion exchange, we are paying for it in US dollars. Therefore, the gold prices are shooting up for us.
These are the two major reasons why gold prices are increasing in India — because of these external factors, I don't see any change in the next few years (in the upward trend of gold prices). Until the wars are going on, US tariff war is going on, and as China attempts some kind of stabilization with its reserve currencies... this is going to escalate.
Right now, Indian buyers seem to be at a disadvantage? Are we paying more for gold than someone who’s buying gold internationally at around USD 3,760 an ounce (28.3 grams) – even with reduced gold GST rate of 3 percent?
Yes, we are paying more — at least that is how it appears. And this is where we say that several things that the government is doing or is planning to do can be more helpful to us.
India's demand for gold has been constant. For the past 30 years or so, the amount of gold coming to India has been hovering around 700-800 tonnes per year, even during the COVID years. Everybody in the industry will state this number. Three decades or so ago, when we got the official number for the amount of household gold (gold held by Indian households), we said it was around 30,000 tonnes. Every year, some 700-800 tonnes (more) is coming in now. The inside joke among us gold enthusiasts, gold researchers and the gold industry people is that it was 30,000 tonnes three decades ago — it must have increased. If 700-800 tonnes is coming in each year; even if I conservatively take it as 500-600 tonnes a year — that adds another 15,000-20,000 tonnes (over the last 30 years). And our exports are not so great compared with our gold imports. So our household gold must have easily gone to 50,000 tonnes.
So why is this not felt?
This is not felt because we are not dictating the price of gold. India should not follow the New York exchange. India should not follow the London exchange, India should not follow Shanghai or any other exchange. Given that we have so much gold, we should be able to dictate our pricing when we are importing. Just like how prices of gold are mentioned in the British pound or American dollars, we should have our exchanges dictating the gold prices in Indian rupees. When we have that, you will not find this disparity (in gold prices) between whether I am buying in America, or I am buying in India. This is the fundamental gap that we have.
Now you must ask me: Why are we not deciding our pricing like the New York exchange, or London exchange set their pricing? Here, the main problem is that our gold economy is very fragmented. The countries that we are doing trade with, say, the UAE, Switzerland, China, Thailand, many of the African countries where we import gold from, they see us as a very fragmented economy (for) gold trade. What we are trying to say here is that any gold coming into the country and any gold that is going out of the country, there should be a single outlet, one point and I would like the India International Bullion Exchange (IIBX) to be that point.
Right now, banks import, and through multiple channels, export is happening. I am not against banks doing gold transactions. But banks should transact this through the IIBX. Any bank which is doing the bullion banking business — SBI, ICICI, HDFC — they should do this transaction through IIBX.
Will this create bottlenecks, cause delays, or make the regulatory framework more complicated for these banks to navigate?
Should not be, is my view. But even if there are hiccups, we should iron them out for the greater good. We should resolve them rather than giving that as an excuse. In fact, in recent times, finance minister Nirmala Sitharaman has been saying in every conversation, every meeting that banks should transact (gold trade) through IIBX. I do not know why banks are not routing these transactions (through the bullion exchange). And if there are any difficulties, the banks should open up to the IIBX or the regulators and then they should do that (resolve the issues, and transact through the single-point bullion exchange).
The problem is there is nobody who is the — how I should say — who is the caretaker or who is parenting gold. Gold, in terms of the larger Indian economy, is everybody’s baby. Suppose you are talking about a share, there is a private entity, an organization that speaks up for it, who is an advocate for it.
For the larger good of the country, there should be an advocate — one entity that takes care of gold transactions. And if there are any hiccups, if there are any loopholes, if the banks are missing something, I would strongly urge banks to come and talk to any of us and to resolve this — banks should transact through IIBX.
So, you are saying that the biggest advantage of this would be that as a major importer of gold, as a country that has such a large reserve of gold — not just within the banks but also within households — that would also give us greater power in terms of the pricing of gold?
Absolutely. This is every gold professional’s dream: India having its own gold pricing. For the Indian exchange to decide pricing; not go by London or New York exchange pricing.
Let’s say we try to untether ourselves from these foreign exchanges to decide the gold prices for India in India. What are some of the things that we will need to do to make that possible?
Any kind of gold import and export, this should happen through one unified exchange where we have created an infrastructure. IIBX is created through which import should happen. Banks should not import gold directly from the foreign traders. They should do it through IIBX. So, that is the first ask.
But if we are still dependent on importing gold, that still ties us to the international market at some level?
Yes, that ties us with international markets. But if you have this volume at one place, we would be able to decide the gold pricing. Now, we are not in the position because we have the volumes but it is not visible. This doesn't happen in other countries because other countries are either small or they go through only one exchange.
If you do that, there are several things which can happen. Our complete gold value chain, our utilization will become higher. Our exports are going to be higher. We will be able to import gold and then we will be able to export gold bullion. We will be able to dictate (prices) in the global market, which I think there's a huge protection, but somehow we are not leveraging and we are not tapping it.
India’s gold exports in 2024 were worth USD 265 million, compared with USD 28.5 billion for gems and jewellery exports — this after a sharp decline of more than 11 percent in the jewellery exports segment. In the same year, the value of India’s gold imports was roughly USD 58 billion. Now, there have been some reports of new gold reserves found in Madhya Pradesh, Andhra Pradesh and other places. Will this domestic supply likely slow imports and affect pricing in the short term?
Every now and then, we get inputs that gold has been found in Madhya Pradesh or in some other state. But let us admit it, our gold reserves in India are not that great.
Second thing: gold mining is very expensive, and it is a very uncertain business. The cost involved in excavating and finding a mine and then mining gold is very huge, number one. The uncertainty part is about how much gold can we retrieve from this mine and what could be the quality (purity) of the gold? We may want to, as a country, continue this excavation part — fine, that is one thing.
The second thing is, the finance ministry is always worried about current account deficit and current account surplus. Two commodities mainly contribute to our current account deficit. One is oil, the other is gold. When you look at gold, it is a reality that we import a lot of gold. This is something that none of us are in a position to negotiate or to contain, because if the Indian households, if Indian women want to buy gold, (as a country, we) better buy gold.
Better buy gold because they are not going to stop buying it just because your cost is increasing; let us admit it. Even during the COVID years, they have seen that. The ministry has tried to curtail imports — the reason that they quote is to curtail the current account deficit. They’ve tried increasing the import tariff to 15 percent (between July 2022 and July 2024; the current import duty on gold is 6 percent, inclusive of an agri-infrastructure development cess), hoping that people will not consume gold. That did not happen.
Internally, our gold consumption pattern is such that whatever you do, the requirement would be 700 tonnes (a year). Either they will buy it at that price (with the additional duty) or they will find some alternate smuggling routes to get that gold in… What I am trying to say is that addressing the current account balance cannot be done through modifying your gold import-export tariffs. That doesn't work in India. Culturally, we don't do that. And culture eats every economist for breakfast. That's what I say. That is the power of Indian women and the power of gold in India.
Professor Sundaravalli says gold is important to us culturally, and we know from past experience that India's gold imports have stayed consistent even during international crises like the COVID pandemic. (AI generated image)
So, what is your recommendation?
The ministry should change their mindset about gold. They should not consider gold as a liability. They must look at gold in a very, very positive manner. They must try to understand how I can reduce the import expenditure. For this, what I have proposed is we have to identify countries which have got low mining cost. For me, right now, Russia has the lowest mining cost of gold. Laos and some African countries also have comparatively lower gold mining cost. But in particular, we have a good relationship with Russia. What I want India to do is lease out some mines in Russia. Just like we are leasing oil fields in some other countries.
When we lease out gold mines in Russia — because it has the lowest cost of gold mining — our import cost will reduce. Because we are leasing, these settlements can happen in multiple ways: It should not happen in US dollars. Either in a BRICS currency or if you don't even want to do that, you settle in gold. The lease cost can be settled in gold. If still some traders find it a little risky — mining is a risky business because there are lots of uncertainties — governments can go into a PPP (public-private partnership) mode. Typically, there is something called a hybrid annuity model (HAM). HAM models of PPP can be floated so that this would be a very, very positive economy for Indian traders, particularly the bullion people who are involved in mining.
It will be a golden opportunity. Our domestic refining capacity utilization is something like only 20-30 percent (right now). Suppose, I take these low cost mines on lease, all this raw gold will come to me and my refining capacity will be utilised to a higher extent. My import cost also will be reduced and when I am able to refine, I will be able to export bullion. My export will also fortify. And gold will be a positive contributor to my current accounts. If I want to manage current account deficit, I have to cut down on the import and I have to increase my export. This is one of the ways forward that I have proposed in my book.
Second thing: we are hardwired to think that when we talk about (Indian gold) export, we are talking only about jewellery export. We don't think even bullion and bars can be exported. We should start exporting bullion, is one part. Second part is that other countries’ affordability for Indian jewellery is very limited. When Indians buy jewellery — Gen Z or anybody — our affiliation to 22 carat gold jewellery is still higher because we are hardwired and then we think that the resale value is there only in 22 carat jewellery. The jewellery sector should function in a twin manner. One, they should look at 22 carat jewellery for the Indian domestic buyers. Two, they should come out with other types of jewellery which could be light, which could be traditional, which could be authentic but should not be based on quantity or weight. It should be based on brand India jewellery. It should be based on value pricing, just like a Bvlgary or any of the top international brands (don't lead with the weight, and give the break down of making charge). They just say this is the price, take it. So our export market jewellery could be completely different and that should be based on value pricing, not on weight-based pricing.
In the introduction to your book, you say that more than half of Indian household’s demand for gold in 2020 came from ‘middle income households’, with earnings between ₹2,00,000 and ₹10,00,000 a year. Are these people getting priced out of the market now with the current prices of gold?
I don't have data about recent times — I don't think we have done that part (of the data collection at IGPC) in the last year. But looking at historical data, Indians have continued to buy gold however much the price rose. When Akshay Tritya comes, you have to buy. When the wedding season comes, you have to buy. You may have traditional family jewellery, but at least a new mangalsutra will be purchased. So in that sense, the purchase behaviour, in my view, would continue to exist.
Is the age of the buyer a factor here?
Gen Z are not averse to gold. The awareness is limited. Some Gen Zs may say that this is like grandmothers’ gold. When you look at people who are above 40-50 now, when they were 21, when they started earning a livelihood, their first objective was to buy a house. However much they struggled, even if it was on EMI, they did that. When you look at the current generation, their spending behaviour is directed by two things. One is instant gratification; I am not denying that. Second, when they are trying to invest, they invest where the assets are going to appreciate. They don't buy a car. They’ll say Uber is there... They buy real estate only if they see the asset is appreciating. When you look at their investment pattern, they see where an asset is appreciating. Whether we realize it or not, they know that gold is appreciating.
Of sovereign gold bonds (SGBs), exchange traded mutual funds, and digital gold, only SGBs have a lock-in period of eight years with an early-exit option after five years. (AI generated image)
On gold ETFs and digital gold, there is a segment in the book where you have talked about digital gold transactions and the regulatory framework for them in India. Do you have a wishlist of what that regulatory framework should have?
(Back when these schemes were rolled out,) I wasn’t part of the India Gold Policy Centre (IGPC)… Gold monetization scheme (GMS), sovereign gold bonds (SGBs) and ETFs — I think they are all a little bit ill-conceived. Gold ETFs, there is a merit (in them). But (think about) why the government is not coming again for the GMS or SGBs? Because the government themselves know that it is not a great product; there are certain limitations.
What kinds of limitations?
At the individual level, gold ETF or SGBs are great. If you ask me, whether you should personally invest in SGBs, (I’ll tell you) that’s great, you should do that. But for the country, this can have implications. Because whenever an investor wants to capitalize and monetize the bonds, we cannot know what the liability is going to be or what externalities will be there.
And considering that gold is becoming so volatile, and gold prices are going to be too high, I wonder if the government should make such a promise to investors – I'm not too sure. The government has to exercise lots of caution in this (regard), rather than saying that there are regulatory gaps and all those things. So, for the individual, it's a great product. Externalities are involved; so government regulations, if we think they are inhibitions and if they are a hurdle to gold ETFs and SGBs, I think that is warranted.
A follow-on question from that: for those who had subscribed to the 2019-20 Series-IV gold bonds issued on September 17, 2019, the Reserve Bank of India has allowed early redemption within five years of subscribing. Would you recommend that investors pull out now, or hold on to the bonds?
I don't know the details, but we must look at the numbers. RBI may say you can redeem but see what is the percentage of redemption? I will tell you it will be minimal. I'm not aware of this (the specifics of this case). But even if the RBI is allowing the redemption, the redemption would be in single digit (percentage points) — this is my hunch.
You mentioned that there is no parent really for gold, but a takeaway from this conversation could also be that gold almost sells itself in this country. Now, given that the world is changing in so many different ways, what if tomorrow the demand for gold were to crash in India and around the world? How do you see it unfolding if, say, cryptocurrencies or the larger blockchain or some aspect of artificial intelligence on the whole becomes so powerful that it changes the way we look at exchanging or paying for goods and services?
I don't think your hypothesis is going to come true at all. The alternative thing that countries talk about is cryptocurrencies, etc. See, conventionally speaking, there has to be a physical asset which is backing anything. Otherwise we’re talking in an empty vacuum. That physical asset can be nothing other than gold. But you're saying in India tomorrow morning I wake up, and the demand for gold is gone, nil, boom, gone.
The kind of uncertainties and challenges that you're talking about (can hit any asset). Say, I have a big penthouse in Manhattan. If the American economy crashes, it's not good for me. But if I have a piece of gold, I'm just going to pick up my piece of gold and go anywhere in the world, and I will be able to sell it at that price on that day. Gold, to me, is the only global hedge asset. Irrespective of the place and time, the value is going to be unchanged and undiminished.
I don't foresee the demand (for gold) coming down. But even if demand were to come down in one particular country, the demand will continue to exist somewhere else. That physical asset will continue to be good. So, my land, shares, my gaadi (car), my bangla (home), everything may – hypothetically – vanish one day. But gold, it will be the last one to fade. That is why we call gold as the world’s hedging asset. Oil demand may go off. Land, shares, asset values can diminish, but gold will be the last (to lose value). That is why I titled my book ‘The Power of Gold’. And that is where I repeatedly say India holding so much of gold – such a powerful asset – we should be the gold capital of the world!
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