Alarm bells are ringing in the finance ministry and, rightly so, as bullion, after energy, is now the biggest contributor to India’s import bill. Bullion imports have traditionally declined when gold prices increase. Buyers cut back on grammage to meet their budgets. However, data from the World Gold Council (WGC) suggests that this long-held pattern is being disrupted. In January-March, gold prices surged 81 per cent year on year and yet domestic buyers actually increased their gold purchases by 10 per cent in volume terms and 88 per cent in value terms ($25 billion against $13 billion). This is because, as households ramp up equity investments, they do need gold as a hedge against market volatility. Gold is also necessary insurance against geopolitical risks, a depreciating rupee, and debt returns that no longer match inflation.
Since India mines very little gold – and this is an issue that needs to be addressed by involving the private sector – this new trend in gold demand (its rising alongside price increase) can escalate the country’s import bill, skew the trade balance and trigger foreign exchange outflows. Unlike energy or electronics imports, which power economic activity, household savings invested in gold are stockpiled and locked out of the financial system.
WGC data provides some insights into this change in behaviour. Historically, the bulk of India’s gold purchases has been from jewellery buyers looking to meet wedding commitments or to use as collateral during distress. Lately, though, investors have overtaken jewellery buyers as the main drivers of demand. Until 2024, over 70 per cent of gold demand, in volume terms, originated from jewellery buyers, with 30 per cent coming from bar and coin buyers. In 2025, demand from ETFs (exchange traded funds), bar/coin buyers picked up to 40 per cent of the total. In Q1 2026, purchases by investors in bars, coins and ETFs (exchange traded funds) at 54 per cent actually overtook jewellery buying as the main source of bullion demand. Jewellery buyers, singed by the higher prices, cut back their volumes by 19 per cent, but bar/coin and ETF buyers increased their purchases by 34 per cent and 197 per cent respectively. Clearly, asset investors and consumers are acting in contrary ways. When prices spike, investors buy more. If investment demand continues to rise, India could face a secular surge in gold imports, irrespective of prices, widening the trade gap.
There are no easy policy fixes here. Rather than curbing gold imports, which only pushes the activity underground, enabling remonetisation of the 30,000-tonne gold stockpile held by households presents a neat solution. But Gold Monetisation Schemes have failed in the past due to inadequate assaying infrastructure. These need to be reworked and revived.
Another strategy could be boosting domestic production. In the mineral-rich district of Kurnool, the Jonnagiri gold project – the country’s first large-scale private gold mine since Independence – is set to begin operations in May 2026. The project is developed by Geomysore Services with backing from private investors. The project involves an investment of about R400 crore and is spread across 598 hectares, with an estimated gold resource of 13.1 tonnes (with potential up to 42.5 tonnes) and an annual output target of about 1,000 kg (1 tonne) for 15 years. The mine uses modern extraction techniques such as open-pit mining and carbon-in-leach processing, signalling a technologically updated approach to gold production in India.
India’s mining sector has historically been dominated by public-sector operations, such as Hutti Gold Mines Limited, especially after the closure of Kolar Gold Fields in 2001. For a nation that consumes vast quantities of gold but produces very little, the Jonnagiri development is being seen as both symbolic and strategic. But the bigger question remains: can one mine really dent India’s massive import dependence, and can the enterprise be replicated?
India is the world’s second-largest gold consumer, driven by jewellery demand, investment, and cultural traditions. With an annual demand of 700-800 tonnes and domestic production of 1.5-3 tonnes, we are spending billions of dollars on imports. While the Jonnagiri project is at full capacity, it will produce about 1 tonne per year, which is a drop in the ocean. But it signals a policy and structural shift as it is the first major private gold mining project post-Independence. Experts believe success here could lead to multiple new mining projects, potentially raising domestic output to 100 tonnes annually over time. Even small increases in domestic supply can help reduce import bills at the margin, especially when gold prices are high.