Reuters published “India’s ‘gold monetization’ scheme could have a big impact on global demand”. According to that article:
“Last week the Indian government approved the so-called gold-monetization scheme . . . [by] creating a system in which Indians holding private gold will be able to deposit it at banks—and then earn interest on their bullion holdings.
“The government plans to then make the deposited gold available to buyers across India. The aim is to reduce gold imports from outside the country, which run at nearly 1,000 tonnes yearly.
“India’s cabinet also approved a ‘gold bond’ program in which citizens will be able to buy interest-bearing bonds backed by gold, rather than owning physical gold.
“Estimates are that private citizens across India hold tens or even hundreds of millions of ounces of gold—which could become available to the banking system, if the monetization program is well received.”
First, a metric ton weighs 2,200 pounds. If India imports 1,000 metric tons of gold at $1,200 per ounce, they’re importing $42 billion worth of gold each year.
India’s current GDP is about $2 trillion per year. Thus, India currently spends 2.1% of its annual GDP purchasing more gold from foreign sources. That’s 2.1% (more or less) last year; 2.1% this year; 2.1% next year. Note that US economists hope that the US economy will grow by 3% annually. Compare that 3% hope to India’s 2.1% annual drag on their economy due to purchasing foreign gold. You can see that 2.1% is a significant expense for an economy the size of India’s and cause for governmental concern.