India brings nearly 100 tonnes of gold back to domestic vaults

India has made a notable shift from the economic policies of 1991, when it exported gold and pledged it overseas to mitigate a looming financial crisis. The country has now shipped in a little over 100 tonnes of its gold reserves held in the UK.

Sanjeev Sanyal, an economist and a member of the Economic Advisory Council to the Prime Minister of India, said on Friday that India will now hold most of its gold in its vaults.

“While no one was watching, RBI has shifted 100 tonnes of its gold reserves back to India from the UK,” Sanyal wrote in an X post

Gold in India is typically held in vaults in RBI’s old office building on Mumbai’s Mint Road as well as Nagpur.

India now boasts significant foreign exchange reserves, capable of covering approximately 11 months’ worth of imports. Its gold reserves have also witnessed an upsurge.

Geopolitical conflict in West Asia that stretched for a long time, buying by central banks including RBI, and physical demand, have pushed gold prices northwards.

As of March 31, 2024, the total gold held by the Reserve Bank was 822.10 metric tonnes as compared to 794.63 metric tonnes on March 31, 2023.

The value of gold (including gold deposit) held as an asset of the Banking Department increased by 19.06 per cent from Rs 2,30,733.95 crore as of March 31, 2023, to Rs 2,74,714.27 crore as of March 31, 2024. This increase is on account of the addition of gold, the increase in the price of gold and the depreciation of the Rupee versus the US dollar.

In the 1990s, India faced a critical situation where its foreign exchange reserves were depleted to the extent that they could only cover a few weeks’ worth of imports. In August 1990, the then RBI Governor proposed keeping 15% of gold reserves abroad for emergency use.

The country’s foreign debt stood at approximately USD 72 billion by March 1990, while its forex reserves had plummeted to USD 5.8 billion, signaling a dire need to raise funds and avoid a potential sovereign debt default. During this period, India had substantial gold reserves, including holdings with the RBI. In January 1991, the State Bank of India sought to bolster forex reserves by leasing some of its gold.

After receiving government approval, 20 tonnes of gold USD 234 million was shipped abroad. However, this measure proved inadequate to avert the crisis. Later, nearly 47 tonnes of gold was shipped overseas in several installments, raising approximately USD 400 million for the government. Following economic liberalisation that same year, when India opened its economy to global markets, it successfully repaid the loans for which the gold had been pledged.