In an about-turn from the economic liberalisation days of 1991 when India shipped out gold and pledged it overseas to avert 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, a noted economist and a member of the Economic Advisory Council to the Prime Minister of India, taking to X on Friday, wrote 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, attaching a news report on the gold’s inward shipments.
Most countries keep their gold in the vaults of the Bank of England or some such location and pay a fee for the privileges.
“India will now hold most of its gold in its own vaults. We have come a long way since we had to ship out gold overnight in 1991 in the midst of a crisis,” Sanyal added.
Gold in India is typically held in vaults in RBI’s old office building on Mumbai’s Mint Road as well as Nagpur.
Cut to today, India has huge foreign exchange reserves, able to cover about 11 months of imports. Its gold reserves too soared.
Gold has been in demand for a considerable period, with its prices rallying to hit record highs now and then. Geopolitical conflict in West Asia that stretched for a long time, buying by several central banks including RBI, and physical demand, have altogether 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 as of March 31, 2023. This increase is on account of the addition of 27.47 metric tonnes of gold during the year.
The value of gold (including gold deposits) held as an asset of the Banking Department increased by 19.06 per cent from ₹2,30,733.95 crore as of March 31, 2023, to ₹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.
Going back to the 1990s, with foreign exchange reserves having depleted to an extent that can only cover a few weeks of imports, reportedly, in August 1990, the then RBI Governor had suggested keeping 15 per cent of gold reserves abroad so that it could be utilized at a time of emergency.
By March 1991, against the country’s foreign debt of about $72 billion, its forex reserves had dropped to $5.8 billion and were virtually in a free fall. There was a desperate need to raise funds, to avert a possible sovereign debt default.
India at that had substantial reserves of gold in its banks including with the RBI. State Bank of India in January 1991, decided to raise forex by leasing some gold.
Post the government’s approval, 20 tonnes of confiscated gold was sent abroad to raise foreign exchange, reportedly to the tune of $234 million.
But it was too little to avert the crisis. Later, nearly 47 tonnes of gold was shipped off to destinations abroad in various tranches, helping raise about $400 million for the government. Post economic liberalisation that same year when India opened its economy to other markets, it had paid off the loans for which the gold had been pledged.