India's golden paradox: High demand, low supply, and the path to self-sufficiency

Time of India

7 days ago

Nilanjan Banik is a professor at Bennett University's School of Business. His work focuses on the application of time series econometrics in issues relating to international trade, market structure and development economics. He is also interested in the "rules" part of WTO; especially examining non-tariff barriers aspects of GATT/WTO agreements. He has project experience with Australian Department of Foreign Affairs and Trade, Australia; Laffer Associates, USA; KPMG, India; Ministry of Commerce, Government of India; Research and Information System for Developing Countries (RIS), New Delhi; Indian Council for Research on International Economic Relations (ICRIER), New Delhi; Center for Economic Policy Research, UK; Asian Development Bank Institute, Tokyo; Asian Development Bank, Manila; South Asia Network of Economic Research Institutes (SANEI); UNESCAP-ARTNeT, Thailand, Australia India Institute, University of Melbourne; and World Trade Organization, Geneva. LESS ... MORE
For Indians the allure of the yellow metal both for its ornamental value and as an asset class, is as old as the country's civilisation dating back to the times of Indus Valley Civilisation or perhaps, even earlier. While that attraction for gold has not diminished over centuries, its supply side has failed to keep pace, resulting in the country's overwhelming dependence on imports. This mismatch of growing demand and reducing supply has become a major burden on the economy with its adverse impact on the balance of trade and a worsening current account deficit.
To put things in perspective, India's gold import in 2024 surged to 802.8 tonnes—a 5% increase over the761 tonnes in 2023—with the import bill ballooning to $48.5 billion. In contrast, India's production was only around 1.6 tonnes of gold, meeting only 0.2% of its total demand. This great divide cuts into the country's precious foreign exchange reserves, makes the economy vulnerable to global price shocks and puts pressure on its exchange rate. Moreover, levying higher import duties has only fuelled greater smuggling thereby undermining formal trade and tax revenues losses.
No lack of reserves
The recent gold reserves data makes the paradox even more evident. In December 2024, the country's gold reserves increased to 876.20 tonnes, valued at $66.2 billion. This significant increase of 72.6 tonnes, the highest since 2021, is only the second highest since 2017, has put India's gold reserves among the top 10 countries globally, says Trading Economics, a mobile app that provides economic data of 196 countries. Similarly, the World Gold Council estimates that India has 2,191.53 metric tons of gold ore resources, but only a fraction of these resources have been explored and exploited. Hence, there is a huge potential that remains to be tapped.
While the Hutti Gold Mine, located in the Raichur district of Karnataka, producing about 1.8 tonnes of gold per year, is the only current producer, there have been significant new discoveries in recent years. Some of these include the Sonakhan prospect in Chhattisgarh held by Vedanta, the Gurahar Pahar prospect of the Mahakoshal greenstone belt or the giant in Rajashtan – Bhukia-Jagpura gold mine with reserves estimated in excess of 100 tonnes. Then in the South, there is the newly- discovered Ganajur gold mine in Karnataka which Deccan Gold Mines Ltd has completed an international feasibility study and the Jonnagiri Gold Mine in Andhra Pradesh developed by Geomysore Services (India) Private Limited which is slated for production by the end of 2025 and will be India's first private gold mine since Independence.
Despite significant geological potential and availability of sizable discoveries, India's gold mining industry has not reached its true potential due to various factors, including lack of exploration, frequent changes in the policy and absence of private exploration/mining companies who have the expertise and risk capital to develop these projects. Though the government brought in the Composite License (CL), not many international companies with the required experience have availed this opportunity. As a result, only a handful of companies eg., Vedanta, Deccan Gold Mines Limited, Geomysore Services (India) Private Limited etc are actively carrying out exploration in India. This is a far cry from Australia, Canada and many African countries where 100s of exploration companies spend millions of dollars developing this industry.
The way ahead
The Indian Gold Mining Policy requires regulatory reforms to enhance self-sufficiency by creating a more viable and attractive environment for exploration and mining operations. To overcome impediments, the government should prioritize ease of doing business through single-window clearances, offering attractive incentives and tax concessions to draw experienced private companies into the sector. Policy reforms must support the security of tenure and appropriately reward the high-risk capital expenditure associated with exploration activities. Streamlining the regulatory landscape, reducing bureaucratic delays, and ensuring transparent and predictable processes will encourage investment, boost domestic gold production, and ultimately decrease India's reliance on gold imports.
For India, it is a time to take some robust measures because the cost of runaway gold imports is extremely high, impacting India's overall economy A slew of market-oriented reforms, mining reforms and global recognition of the refining sector can go a long way is pushing greater Atmanirbhartha, job creation, and overall development of the economy.
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Views expressed above are the author's own.