India’s relationship with gold is ancient, emotional and enormously expensive. Every year, we import 800–900 tonnes of the yellow metal, spending close to $50 billion in precious foreign exchange — making gold one of the largest contributors to the current account deficit (CAD) year after year. Successive governments have tried customs duty hikes, quantity restrictions and periodic schemes to curb imports. Yet, demand has proved stubbornly inelastic. Gold continues to flow in—through official channels when duties are moderate, and through unofficial ones when they are not.
What’s less well known is that when the gold exchange-traded fund (ETF) was first conceived, one of its objectives was not merely financial innovation but to reduce, or at least postpone, the import of physical gold. The idea was elegant: channel India’s deep and lasting appetite for gold into financial products rather than repeated shipments of imported bullion. That promise, however, has never been fully realised, because the supporting market structure and regulations evolved differently from that original vision. Three structural reforms could finally make good on it.
