Is India really a fiscally weak nation ?

Is India really a fiscally weak nation ?

Gold Reserves with Central Bank

The Reserve Bank of India purchased 52.3 tonnes gold in FY20 to augment its foreign exchange reserves, according to the latest data released on Tuesday by the World Gold Council. With this, it has entered the league of the world’s top-10 gold holding central banks. RBI currently holds 612.6 tonnes of the metal as part of its foreign exchange reserves. Till about a month ago, the central bank was ranked 11th, but in March it added 3.7 tonnes of gold to its forex reserves.

The latest data shows the RBI’s gold holding is 6.1% of its overall foreign exchange reserves. India’s central bank started adding gold from over a year ago after staying put for eight years. Previously it had added gold in November 2009 when it bought 200 tonnes from IMF. Not just RBI, many other global central banks, such as those in Russia, China and Turkey have started adding gold in a big way to their forex reserves. The India Gold Reserves is projected to trend around 650.00 Tonnes in 2021.

Gold Reserves with various countries

Gold plays an important role in the central bank’s reserve management. The WGC data reveals that central banks across the world aren’t taking any chance with the uncertainty looming. They are maintaining healthy gold reserves amidst times when global economic and geopolitical uncertainty has heightened.

As of July 2020, the United States had the largest gold reserve – more than 8,000 metric tons of gold. This was more than twice the gold reserves of Germany and more than three times the gold reserves of Italy and France. China was ranked sixth for the amount of gold it has on reserve, but more gold is being mined in China than any other country in the world. While the share of gold reserves constituted 77 percent of the U.S. central bank holdings in 2019, in China this figure amounted to only three percent.

Astonishing levels of Gold Reserves in Indian Temples

2016 estimates of gold with temples in the country could be 3,000-4,000 tonnes. Interestingly the reserves of RBI gold vs temple gold is 1/4th. Much of this is what is termed ‘idle’ gold — just in temple vaults. The central government launched Gold Monetisation Scheme in 2015 was one attempt to get these hoards out and put them to productive use. Under it, jewellery and other articles have to be melted to verify the purity and sent to refineries for making bars.

TOP TEMPLES that contribute 85% of total gold reserves

  1. Padmanabhaswamy Temple, Kerala
  2. Sri Venkateswara Temple, Tirumala, Andhra
  3. Vaishno Devi Temple
  4. Siddhivinayak Temple, Mumbai
  5. Saibaba Temple, Shirdi, Maharashtra
  6. Shree Krishna Temple, Guruvayur, Kerala
  7. Jagannath Temple, Puri
  8. Somnath Temple Trust, Gujarat

Gold Monetisation Scheme and its Objective

GMS allows the depositors of gold to earn tax free market determined interest income (denominated in gold but recoverable either in gold or in rupee [mandatorily in rupee if it is deposited for a medium or long term]) from the pure gold they deposit with banks in their “Gold Savings Accounts” and permits the jewelers to obtain their raw material -gold bars created from the melting of the gold deposited with the banks- as loans in their “Metal account”.  In addition, Banks / other dealers would also be able to monetize their gold.

Gold can be submitted in any form (bullion, jewellery etc) but the amount deposited with the bank is calculated on the basis of the pure gold content of that deposit (after removing the weights of precious stones in jewellery etc.), which is verified through an accredited assayer. Both principal and interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example if a customer deposits 100 gms of gold and gets 1%  interest, then, on maturity he has a credit of 101 gms. The customer will have the option of redemption either in cash or in gold, which will have to be exercised in the beginning itself (at the time of making the deposit).

Gold Monetisation Scheme was launched on 5th November, 2015 and till December 10, 2016 a total of 5781 Kilograms of Gold has been mobilized under the Gold Monetisation Scheme including those raised from a few temples. It is not mandatory for temples to deposit in the scheme.

Gold Monetisation can be a big hit if Temple Gold gets Monetised

Extreme times call for extreme measures. India is reeling under a chronic economic crisis. If the Indian government takes these measures then it will go a long way in mitigating the economic fallout of the COVID-19.

Shiny Yellow Metal – Elephant in the Room

Even if we take the 3 year old estimates of 3,000-4,000 ton lying in the temple vaults, the value of this reserve is a whopping 6 lac crore which is 4x the amount with RBI.

Since the coronavirus pandemic began spreading its tentacles in India and the economic crisis became more pronounced, none of India’s top economists, policymakers suggested this measure.

Win Win Situation for both parties- This gold can be utilized under the Gold Monetization Scheme (GMS) to convert gold into monetary form. The temples can earn a rate of interest on their rotting gold reserves and Central banks and Government of India can manage their fiscal math by curbing costly gold imports. India imports 800-900 tonnes of gold annually ( in our calculations we are not even considering the annual inflow of gold in these temples for next 5 year).

Financial Emergency – The need of an Hour

The word ‘emergency’ is like a Pandora’s Box to say to the least. The ruling regimes in India at different points of time have misused emergency provisions to overthrow state governments for either settling political scores or under the ludicrous garb of bad governance. But the emergency may emerge as a messiah at this point of time. India is reeling under extreme economic pressures, revenues are low, layoffs in companies are high, and on top of that, the prolonged national lockdown has forced economic activity to come to a grinding halt.

India’s Fiscal Math

The government, while unveiling the budget proposals for 2020-21 in February, had proposed to bring down the fiscal deficit to 3.5 % of the GDP. The budget was presented about two months before the country affected lockdown on March 25 to deal with the COVID-19 pandemic. The deterioration in provisional accounts for 2019-20 can be attributed to tax revenue shortfall, both cyclical and structural.

Given that the budget estimates of 2020-21 were projected on the basis of 2019-20 RE, a shortfall in tax revenue collections in 2019-20 (Provisional Accounts) vis-a-vis 2019-20 (Revised Estimates) may distort the fiscal arithmetic for 2020-21.  This could be further impacted adversely by COVID-19 related macroeconomic effects in 2020-21. India’s targeted fiscal deficit for FY21 can be around 8 lac cr.

During 2018-19, the fiscal deficit was 3.4 % the GDP. The government had said it would have restricted it to 3.3 % but for the income support to farmers. The government had provided Rs. 20,000 crore towards the income support for 2018-19 while presenting the Interim Budget for 2019-20 (February 1, 2019).

The Reserve Bank of India (RBI) bought 40.45 tonnes of gold in the financial year 2019-20, taking its total holdings of the yellow metal to 653.01 tonnes. The RBI’s total gold reserves were 612.56 tonnes in the preceding fiscal ended March 2019. With the addition of more stocks, the value of gold reserves rose to $30.57 billion (around Rs 2,32,000 crore) by March 2020 from $23.07 billion in March 2019.

As much as 360.71 tonnes of gold was held overseas in safe custody with the Bank of England and the Bank for International Settlements, while the remaining gold is held domestically, the RBI said in its ‘Report on Management of Foreign Exchange Reserves’. In value terms (USD), the share of gold in the total foreign exchange reserves rose from about 5.59% as of March 2019 to about 6.40% by March 2020.

Long Term Trend by Gold

Indian Gold Reserve Valued at 40% of Total GDP

Technically speaking 40% of India’s GDP is kept idle, for sure the underlying asset price is appreciating but without any yield earned on it. In other words, 40% of country’s GDP is lying in the vaults and lockers of individuals and religious institutions. Factoring in the central bank’s reserves (608.8 tonne) and an import duty of 10%, the domestic value of the gold stocks at most of the known sources in the world’s second-largest consumer will be even higher.

Households in India may have piled up around 24,000-25,000 tonnes of gold, remaining the world’s largest holders of the precious metal, Somasundaram PR, managing director (India) of the London-headquartered World Gold Council (WGC), has told FE. At Friday’s international price, the value of the holdings (25,000 tonne) would be as much as $1,135 billion, or equivalent to more than 40% of India’s nominal gross domestic product (GDP) in FY19.

Factoring in the central bank’s reserves (608.8 tonne) and an import duty of 10%, the domestic value of the gold stocks at most of the known sources in the world’s second-largest consumer will be even higher. Despite subdued demand in recent years, gold holdings have accumulated over the decades, thanks to the traditional penchant for the precious metal.


To put it simply, India gold reserve with temples is far more than India’s struggling fiscal deficit. A gold monetization scheme can be a win win for everyone. It can aid India shrug off its so called weak balance sheet and status of a developing nation. We can be a fiscally independent nation without worrying about the hanging sword of western rating agencies. Such scheme can put to use a large part of the GDP which otherwise plays no role in nation building.  

Pls Note- This report doesn’t even factor in annual inflow of gold in these temples for next 5 years.

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