A string of government administrations, one after another, have attempted to address India's crippling cultural affinity for gold. To be clear, there's nothing harmful about the people's predilection for gold; it's the fact that nearly all of India's gold demand must be met by imports. With such a valuable commodity like gold, this has a devastating effect on the national trade deficit, as India cannot possibly export enough products to offset the enormous cost of its gold imports. The country brings in approximately 1,000 metric tonnes of gold bullion from overseas each year.
Now, it appears India has taken a different approach to solving its gold problem.
Mining Gold at Home
The current state of domestic gold mining in India is a paltry 2 tonnes per annum, making up less than 0.2% of the country's total demand throughout the year. This is why the populace's affection for gold makes such a headache for the country's economists; with each additional ounce of gold that comes to its shores, the deficit widens.
The most readily available tool for relieving the country of this trade burden would be to satisfy the demand through domestic mining efforts. Up until now, most have reckoned that this was inviable on the Indian subcontinent. However, Prime Minister Modi's administration may have found a way to change that.
Local governments have identified scores of old and abandoned gold mines, many dating to the time of the British Raj. Many of these mines are "very deep," and may still yield more gold. Restarting operations at these sites is expected to go forward in the coming months.
This is not the first time that a new scheme to keep the country flush with domestically mined gold has been floated. Just a few years ago, the state instructed a group of archaeologists to dig at a site where, according to one of the country's various religious leaders' unwavering convictions, some 1,000 tonnes of gold were buried. The excavation proved fruitless, but was nonetheless heeded as worth pursuing.
In addition to mining its own gold, there are at least two other ways that India is attempting to solve its gold conundrum.
First, the government has made a concerted effort to encourage more gold refining to be done in the country. The "middleman" status of gold refiners is an important way to stay on the right side of the economics: rather than simply exporting a portion of the gold it imports, perhaps offsetting the cost of each ounce of imported gold one-for-one, transforming that gold into a more valuable product (like jewelry) can be quite lucrative.
This question of "value-added products" typically comes up with commodity-rich developing nations that rely upon exporting raw natural resources. Those countries are pushing to refine their own minerals into value-added products for export rather than allowing middleman multinational corporations to reap all of the rewards. India, although not the source of its gold, can certainly apply the same principle to refining its own metals into jewelry and other products that can be "marked up" with a premium due to their labor and fabrication costs.
Second, PM Modi has been pushing the country's religious temples to deposit their massive stockpiles of gold—estimated to be as much as 3,000 tonnes, more than held by any single entity besides the U.S. government—in exchange for an interest-bearing account. This gold (which is faithfully added to by the devout each year) could then be melted down and sold domestically, reliving a considerable amount of import demand.
Though progressive, this idea has gained little traction among the general population. While some see the use of gold to help the economy as good karma, others are skeptical about leasing out what was intended as an offering to the divine. Only a few temples have participated in the government's plan so far, while others are waiting to see if better interest rates are offered.