Gold Management in India : Time for a Relook

Warrier's Daily Mail, May 17, 2020 : Gold Management in India

A. Inside Track - Open The Magazine

Review of Monteksingh Ahluvalia's latest book "Backstage" by Dr G Sreekumar.

B. Mainstreaming and accounting of India's domestic gold stock now remaining unproductive : Mr. Prithviraj Chavan's statement

Some discussion is happening in the social media about the management of domestic gold stock in India in the context of the above report. Many have become emotional about the inappropriate use of the word "appropriate" used in a media story which appeared in another report on Chavan's observation. Chavan has clarified that he was misquoted.

Since the beginning of last decade, I have been consistently pleading for mainstreaming and accounting a part of the estimated surface gold stock of over 24,000 tons in India.

We are, every year, wasting substantial amount of precious foreign exchange for import of gold which is used for unproductive purposes.
Link to my first article on gold management is copied below:
The 2015 article on
"Using Temple Gold for Shoring up the Economy: Learning from Kautilya’s Arthashastra" by P K Gautam who was with the  Institute for Defence Studies and Analyses gives more insight. Link below:

M G Warrier

Abraham Philip, Ex-RBI, wrote in a closed group email yesterday (May 16, 2020):
"In my village there was a drunkard who inherited some land from his father. He was very selfish and never cared for his children. In order to give good education to the children drunkards wife wanted to sell some land which was not giving any yield. But all the relatives were against that. Ultimately her will prevailed and she could give college education to all her 3 children. Now the children had prospered and that family is very rich and also a help to the needy neighbours of the village. Children are taking good care of the parents and the man stopped drinking. He is now 84 years old. If that lady had not sold the land, the children would have stopped studies after 10th standard.
The wealth of temples, churches and mosques are as a result of the offerings by the devotees. We, Christians are supposed to give 10% of our annual income to the churches. There are many ordinary people who scrupulously keep an account of their income and give more than 10% for charity. The unproductive gold of temples, except the ornaments which are used for adorning the deities should be used for the welfare of the public. Of course, not by force. When the devotees prosper temple coffers will again be flooded with more and more gold in geometrical proportion.
Abraham Philip"
I think the above view is "representative" and can be kept in mind while discussing gold management.

A short write up put together last year (2019) at the instance of India Gold Policy Center at IIMA and an article published in The Hindu Business Line on April 13, 2012 (Print edition) follows. 
Perhaps we can discuss the issue, using this write-up as a background paper. 
Let me make it clear, suggestion is not to confiscate any private assets. But time is opportune to bring transparency in the "Nation's Balance Sheet". This is not my personal view. Please glance through the chapter on gold management in Vinod Rai's book "Not Just An Accountant" to get shocked by some startling revelations on the subject.

M G Warrier
May 17, 2020

Gold Management in India: Problems and Prospects
M G Warrier

“As a macroeconomist, I uphold the view that integrating gold with India’s broader economic vision is the touchstone for India’s gold policy and gold markets. The foremost is adopting ‘Make in India’ policy which should address unexplored gold stocks below the ground, optimal use of gold stocks in circulation, and mobilize gold holdings held by individuals in lockers and temples.”
-Errol D’Souza, Director, IIM, Ahmedabad

Some of the loud thoughts in this paper may sound unconventional and therefore politically unacceptable in the present scenario, but the prayers of 99 percent Indians who do not own more than 20 grams of gold per family are behind me, to make things happen in India's favour. Perhaps India may be alone in the world to sustain the dubious distinction of grossly mismanaging an asset (read gold) the country has been holding for centuries in huge quantities, in multiple forms, and in various places. When the population starved and died as a consequence of bad governance or as victims of nature’s wrath, Indian rulers allowed use of huge quantities of gold (a) to be wasted for gold-plating of roofs, flag-masts, and statues and (b) to be held in underground vaults, hidden and unaccounted, as unproductive ‘assets’.

RBI’s gold holdings

It has to be said to the credit of those who drafted Reserve Bank of India Act, 1934 which came into effect on April 1, 1935, that the framers of the Act included appropriate provisions in the Act to give the respect it deserved, to the yellow metal. Original Act provisions mandated RBI to ensure that 40 percent of the value of currency issued was backed by gold bullion and sterling reserves. Of course, with the higher level of trust of people in the central bank emerging, this was reduced and from 1956, RBI follows Minimum Reserve System(MRS). Under MRS, the central bank has to keep a minimum reserve of Rs200 crore comprising of gold coin and gold bullion and foreign currencies. Out of the Rs200 crore, Rs115 crore should be in the form of gold coin and gold bullion. Public trust in RBI is reinforced by a strong Balance Sheet maintained by the Reserve Bank of India.
When India faced a near crisis in meeting international payment obligations in 1991, it was the gold-holdings in the RBI’s vault that came to the country’s rescue. In January 1991, as India struggled to finance its essential imports, especially of oil and fertilizers, and to repay official debt,  the Chandra Shekhar government knocked at different doors in the global financial system, which India considered friendly, for forex support.. India actually managed to get a bit of a breather with the first tranche of $755 million from the IMF, but that was too little.
By mid-March 1991,  global credit-rating agencies placed India on watch and by April, downgraded the country’s sovereign rating from investment grade to a notch lower, making it virtually impossible to raise even short-term funds.
When all efforts to raise funds got stuck up with hurdles, some central banks and investment banks abroad,  pointed to the fact that India had enough gold which could be utilized.
Between July 4 and 18, 1991, the RBI pledged 46.91 tonnes of gold with the Bank of England and the Bank of Japan to raise $400 million. But as the economic situation improved, the government repurchased the gold before December the same year and transferred it to the RBI.
Memories, sometimes haunt us, at wrong occasions. Post-1947, UK and US and world bodies controlled by them and their allies were very friendly with India when they felt that we are able to manage our affairs on our own and kept a safe distance when we needed them most.
Hopefully, the time when other central banks and international bodies will be keeping their gold in the vaults of Reserve Bank of India is not far off. That day, we will again remember 1991 with a smile.
After a long gap, RBI has added 208 tonnes of gold to the reserves during the last nine years. RBI purchased 200 tonnes of gold from the International Monetary Fund (IMF), under the IMF’s limited gold sales programme in 2009.
“This was done as part of the Reserve Bank’s foreign exchange reserves management operations. The purchase was an official sector off-market transaction and was executed over a two week period during October 19-30, 2009 at market-based prices,” the central bank announced on November 3, 2009. Again, after a gap of almost a decade, during 2017-18, RBI has added 8.46 metric tonnes of gold to the country’s gold reserves taking the gold component in foreign exchange reserves to 566.23 metric tonnes. Even at this level, the gold component in the central bank’s foreign exchange reserves constitutes only 6.3 percent. The US has the highest percentage of gold reserves with Fed Reserves at 74.9. See Table 1.
In the recent past, GOI and RBI have taken several measures to restore the respectable position of the yellow metal, much beyond its decorative worth.

Table 1

World’s top 10 central banks having a substantial gold component in their foreign exchange reserves (2017)
Serial No
Gold Reserves
As % to Forex Reserves

After independence, India continued to spend huge amounts of precious foreign exchange to procure gold for meeting the ever-increasing demand from the domestic jewelry industry. 
Errol D’Souza, Director, IIM, Ahmedabad in his note recorded in the 3rd Annual Report (2017-18) of the India Gold Policy Centre had this to say about gold management in India:
“As a macroeconomist, I uphold the view that integrating gold with India’s broader economic vision is the touchstone for India’s gold policy and gold markets. The foremost is adopting ‘Make in India’ policy which should address unexplored gold stocks below the ground, optimal use of gold stocks in circulation, and mobilize gold holdings held by individuals in lockers and temples.”

Long back, someone had stated that India is a rich country with poor people. That person was not talking about the ‘hidden wealth’ in this country. In reality, the unaccounted wealth (for the time being the reference is not to tax evasion) in the custody of individuals and organizations in the form of gold, jewelry, and real estate, waiting to be mapped and mainstreamed must be worth trillions of rupees. If we are able to create a national consensus and build public trust to mainstream and pool a part of such domestic assets, India’s dependence on external sources for our immediate development needs will come down drastically. This will be a challenge worth chasing.
It is not comforting to see ‘fund mobilization drives’ to help flood victims in Kerala at the instance of governments abroad being organized to provide financial support to India when our own wealth idle in vaults here. Fortunately, responding to media reports about an offer of ‘aid’ from a friendly kingdom (UAE), GOI was quick in advising Government of Kerala to politely decline such direct offers from foreign governments simultaneously clarifying that there was no ban on receiving contributions for relief and rehabilitation work from individuals and organizations of NRIs abroad.
The excerpts in Box 1 are from a media report (Source: The Hindu Website) about the Temple Treasure in Padmanabhaswamy Temple, Thiruvananthapuram.

Box 1
Temple Treasure in Padmanabhaswamy Temple, Thiruvananthapuram

Inventory of the treasure[edit]

The Supreme Court of India had ordered an amicus curiae appointed by it to prepare an inventory of the treasure. Full details of the inventory have not been revealed. However, newspaper reports gave an indication of some of the possible contents of the vaults.[4] About 40 groups of objects were retrieved from Vault E and Vault F. Another 1469 groups of objects found in Vault C and 617 in Vault D. Over 1.02 lakh (102,000) groups of objects (referred to as articles collectively) were recovered from Vault A alone.
According to confirmed news reports, some of the items found include:-
·         A 4-foot (1.2 m) high and 3-foot (0.91 m) wide solid pure-golden idol of Mahavishnu studded with diamonds and other fully precious stones.[7]
·         A solid pure-golden throne, studded with hundreds of diamonds and precious stones, meant for the 18-foot (5.5 m) idol of the deity
·         Ceremonial attire for adorning the deity in the form of 16-part gold anki weighing almost 30 kilograms (66 lb)
·         An 18-foot (5.5 m) long pure-gold chain among thousands of pure-gold chains
·         A pure-gold sheaf weighing 500 kilograms (1,100 lb)
·         A 36-kilogram (79 lb) golden veil
·         1200 'Sarappalli' pure-gold coin-chains encrusted with precious stones weighing between 3.5 kg and 10.5 kg
·         Several sacks filled with golden artifacts, necklaces, diadems, diamonds, rubies, sapphires, emeralds, gemstones, and objects made of other precious metals
·         Gold coconut shells studded with rubies and emeralds
·         Several 18th-century Napoleonic-era coins
·         Hundreds of thousands of gold coins of the Roman Empire
·         An 800-kilogram (1,800 lb) hoard of gold coins dating to around 200 BC [8]
·         According to varying reports, at least three if not many more, solid gold crowns all studded with diamonds and other precious stones
·         Hundreds of pure gold chairs
·         Thousands of gold pots
·         A 600-kg cache of gold coins from the medieval period
While the above list is on the basis of reports describing the July 2011 opening (and later) of Vaults A, C, D, E and F, a 1930s report from The Hindu mentions a granary-sized structure (within either of vaults C or D or E or F but not Vault A) almost filled with mostly gold and some silver coins.A. Srivathsan (June 6, 2013). "When the vault was opened in 1931". The Hindu. Retrieved 27 November 2015.
Future course
I would like to conclude this article by repeating a slightly modified version of the concluding paragraphs of my own article in this magazine on the same subject written some 3 years back:
Reserve Bank of India should counsel GOI to understand the significance of the treasure in the form of gold stock with institutions and individuals lying idle in the country. As a short-term plan, concrete measures should be initiated for putting at least some 20 percent of the domestic gold stock to productive use in the next 5 years. This will reduce the country’s gold import bill considerably. This can be achieved by:
·         Making a realistic assessment of gold stock remaining idle in the country
·         Providing incentives to holders of gold stock to properly account for the stock with them
·         Making gold deposits with banks remunerative
·  Introducing gold-backed financial instruments which are not dependent on imported gold (The tiny instruments now available in the form of Gold ETFs, gold coins and Sovereign Gold Bonds are indirectly dependent on import and have not attracted significant investor-interest)
·  Quickly arrange for infrastructure, technology support and linkages for gold refining and certification facilities of international standard
·  RBI and GOI could consider even deficit financing for the procurement of domestic gold as this could herald the emergence of a ‘Golden Era’ in the country’s history.
****     ****     ****

Annexure I


Article published in the Hindu Business Line on April 12, 2012


Gold management needs a makeover

M G Warrier

The management of gold reserves has been a subject of intense debate and controversy. The Budget 2012-13 has proposed a doubling of customs duty, while the Reserve Bank has expressed its concern about rising imports of gold and other precious metals.
In March 2011, the World Gold Council identified India as a key driver of global gold demand. It made the following observations:
At more than 18,000 tonnes, Indian households hold the largest stock of gold in the world.
Gold purchases in India accounted for 32 percent of the global total in 2010.
The vast majority of the Indian population (70 percent) lives in villages, which have traditionally formed the source of more than two-thirds of Indian gold demand.


The WGC research shows that by 2020 cumulative annual demand for gold in India will increase from the present level of 1,000 tonnes to more than 1,200 tonnes or approximately Rs. 2.5 trillion, at 2011 price levels. Gold is a key factor in forex reserves management and assets of financial institutions. It is held in the form of jewelry, bullion, gold bars or coins by institutions and individuals and so on. The quantity of gold with religious institutions and households in India has never been assessed.
According to one estimate, of the world's exploited stock of 140,000 tonnes of gold, WGC has estimated holdings of gold by Indian households at more than 18,000 tonnes. About 600 tonnes are held with RBI and an unestimated quantity is held by temples and religious institutions.
The Government and RBI decided rather late, or in the last quarter of 2009, to increase the gold component in the country's forex reserves by about 200 tonnes (valued at over Rs 30,000 crore) by way of a purchase from the International Monetary Fund.


While the overall stock position and central bank's holding of gold are not that impressive, our country imports around 800 tonnes of gold annually, which is no mean quantity. The deployment of this precious metal to the advantage of the nation makes for a sorry story.
Gold should be restored its status as a store of value by making it tradable, secure and available in ‘paper' form, against actual stocks of pure and standard gold.
It is high time gold is accorded the position it deserves in forex reserves management. The Centre could also consider an arrangement, through RBI or any other duly constituted authority, to trade in ‘paper gold', against genuine tradable gold stocks. Mutual Fund ETFs are no substitute for this.
In India, gold is popular for all wrong reasons. The fascination for this yellow metal as an ornament and as dowry has led to a reluctance among people to talk about gold in public.
From the retail investors' point of view, unfortunately, Gold Exchange Traded Funds (ETFs) are yet to become popular and really tradable. Therefore, the common man is tempted to invest in ornament gold, which has several negatives such as difficulty in ensuring purity, making charges, security-related issues, and inadequate liquidity.
The infamous money-lender takes advantage of the helplessness of the common man by luring him with loans against jewelry at high rates of interest. He would offer unimaginably high amounts of loan against each 10 gram of gold, with the ultimate motive of robbing the owner (the pledged gold is sold or forfeited by the money-lender as the loan plus interest grows much beyond the real value of gold pledged in less than a year). This trend, hopefully, has been reversed with the recent RBI directive to follow prudential norms in regard to the loan-to-value ratio.


The time is ripe for authorities to think in terms of dedicated professional institutions at the regional/state level, which will handle gold from a banking angle. An apex body should be equipped with linkages for import and export of gold and gold products with borrowing and lending capabilities.
States like Kerala have successfully intervened in other similar sectors like chits/kuris and lotteries, which were also areas of exploitation by vested interests. Private players had to fall in line and function with discipline and self-regulation.
Establishment of ‘Gold Corporations' with state participation could also be debated. Such an institution can act as a depository where the gold possession of individuals now in bank lockers and the pledged gold can find a safe shelter, provided the purity can be ensured, and the ‘Corporation' can find the resources and skill to deal in gold and retain the customers' confidence.
(The author is former General Manager, RBI.)

Annexure II*

Excerpts from a personal mail dated October 9, 2018 received from IIM, Ahmadabad:

India Gold Policy Center (IGPC) at IIMA  plans to organise the Second Conference on policy-relevant research on gold related topics. The Conference will focus on a range of topics, from motives of the households to invest in gold, the structure of gold markets, to macroeconomic policy choices on gold. The Conference will facilitate meaningful interaction among the academia, policy makers, and other key stakeholders in the gold ecosystem.

Conference topics
An illustrative list of topics identified for the Conference below:
·         OTC, spot and derivatives exchange platforms
·         Financing structures from mining to retailing
·         Gold’s silent role as a quasi-currency in international markets
·         Structure and pricing efficiency of gold markets
·         Consumer behaviour with respect to gold
·         Retailing and logistics of gold
·         Central Bank policies relating to gold
·         Taxes and tariffs on gold trade
·         Household finance and gold
·         Linkages among gold and other precious metals, commodities, equity, and debt
·         Implications of macro

*The issues are live at Global level



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