‘Telling People to Not Buy Gold Has the Opposite Effect’: Deepak Shenoy Shares Other Ways to Reduce Import Bill

Why It Matters

Gold imports are the second‑largest driver of India’s foreign‑exchange outflow; shifting to domestic supply could stabilize the rupee, shrink the current‑account gap and protect reserves.

Key Takeaways

• RBI could sell 200 tonnes of gold annually, cutting imports by ~50%.
• Repurchase program at 2% below market may recycle 1% of 30,000 t.
• $30 billion dollar outflow reduction eases rupee pressure and CAD.
• Eliminating capital‑gains tax incentivizes household gold sell‑backs.
• Gold‑ETF lending could add modest domestic supply, boosting liquidity.

Pulse Analysis

India’s gold imports have surged to roughly $51 billion in FY25, second only to crude oil in the nation’s import bill. The high demand for gold—driven by cultural preferences, retail investors, and ETFs—exerts pressure on the rupee and inflates the current‑account deficit, which analysts project could reach $80 billion by FY26. Traditional demand‑side nudges, such as urging citizens not to buy gold, have proven counter‑productive, as households view gold as a trusted hedge against policy uncertainty.

Deepak Shenoy, founder of Capitalmind, proposes a supply‑side overhaul. He suggests the Reserve Bank of India liquidate about 200 tonnes of its 800‑tonne gold cache each year, a move that could replace nearly half of annual imports and shave roughly $30 billion off foreign‑exchange outflows. Complementing this, a government‑backed repurchase scheme priced 2 % below market, coupled with transparent assay, digital receipts and direct bank transfers, could recycle just 1 % of the 30,000 tonnes of gold already stored domestically—enough to meet half of yearly demand. Removing capital‑gains tax on these transactions would further encourage participation.

If implemented, these measures would diversify India’s gold supply, reduce reliance on costly imports, and provide a modest liquidity boost to the RBI’s balance sheet. A lower import bill would ease rupee volatility, improve the current‑account balance and preserve foreign‑exchange reserves, which sit above $500 billion. While challenges remain—such as managing the liquidity impact of RBI gold sales and ensuring robust assay standards—the proposals offer a pragmatic pathway to mitigate one of India’s most persistent macro‑economic pressures.