When the Prime Minister asks you to stop buying gold — Here is what you should do instead

A practical guide for Indian households navigating the gap between national interest and personal financial security

The clarion call from Hyderabad

On the evening of May 10, 2026, Prime Minister Narendra Modi stood before a massive gathering at the Secunderabad Parade Grounds in Hyderabad and did something no Indian Prime Minister had done in living memory. In the middle of a political rally, he issued seven economic appeals — not as policy announcements, not as budget provisions, but as a direct personal request to every Indian household.

Among them, one landed with the weight of a cultural provocation:
"For a year, be it any function — we shouldn't buy gold jewellery."

By the next morning, the Sensex had crashed over 1,300 points. The Nifty dropped 330 points. jewellery stocks — Titan, Kalyan Jewellers, Senco Gold, Sky Gold — fell up to 12% intraday. Markets read the appeal as a sign that the government was genuinely worried. And it had reason to be.

The backdrop was severe. Crude oil had spiked to a 52-week high of $126 per barrel as the West Asia crisis deepened and the Strait of Hormuz deadlock disrupted Persian Gulf supply lines. India, which imports nearly 88% of its crude oil requirement, was watching its import bill balloon. Simultaneously, India's forex reserves had slipped from $728 billion in February 2026 to around $691 billion by late April. The rupee was at record lows against the dollar. And gold — India's second largest import after crude oil — had cost the nation nearly $72 billion in FY26 alone.

The arithmetic behind the PM's appeal was not wrong. But for the 140 crore Indians who heard it, the question was immediate and personal: If not gold, then what?

This piece is an attempt to answer that question honestly — with context, with data, and with practical guidance that respects both the national concern and the household's legitimate need.

Why Indians buy gold: It is not what we generally attribute to

Before we discuss alternatives, we must understand what gold does for the Indian household. This is almost always missing from the policy debate, which views gold purchases primarily as a foreign exchange problem.

For the Indian family — particularly the middle-income and lower-middle-income household — gold performs at least four distinct economic functions simultaneously:

     -   It is savings:

For hundreds of millions of households with limited access to formal financial products, gold is the most accessible, liquid, and universally trusted savings instrument available. You do not need a demat account, a broker, or literacy in financial statements. You buy it at a jeweller you trust, you store it at home, and you know its value every morning when you check the price.

- It is insurance:

When a medical emergency strikes, when a crop fails, when a business hits a rough patch, gold is the first asset a family liquidates or pledges. It requires no paperwork, no credit history, no bank relationship. It is accepted as collateral everywhere — from the largest NBFC to the smallest co-operative lender in a district town. Gold loans have surged 128% to nearly ₹4 lakh crore precisely because this collateral function is deeply embedded in how Indian households manage financial shocks.

- It is inheritance:

Gold moves across generations as the most portable and universally valued form of family wealth. It travels with daughters into their new homes, it funds grandchildren's education, it marks every significant rite of passage. This is not sentiment alone — it is a rational response to a formal estate and inheritance system that remains complex and slow.

- It beats inflation:

Over 25 years, gold has delivered an annualised return of 11.1% in rupee terms (Morgan Stanley, 2024) — significantly ahead of fixed deposits (7.3%), real estate (7%), and comfortably ahead of inflation. More pointedly: at a 30% income tax slab, a 7% FD yields a real post-tax return of approximately -1.1% annually after factoring in 6% average inflation. Gold, for much of its holding life, has not just preserved purchasing power. It has grown it.

This is the foundation. Any alternative we consider must, at minimum, replicate these four functions — or clearly explain which ones it addresses and which ones it does not.

The scale of what the PM is asking

To appreciate the weight of the request, consider the numbers. Indian households collectively hold an estimated 25,000 tonnes of gold — surpassing the combined reserves of the world's top 10 central banks — valued at approximately $2.4 trillion, equivalent to 56% of India's projected nominal GDP in 2026.

Annual demand has averaged 750–850 tonnes over the past decade. In 2024, India consumed 802.8 tonnes, valued at ₹5.15 lakh crore — a 31% increase in value over the prior year. In Q1 2025 alone, investment demand for gold jumped 54% year-on-year to 82 tonnes. The share of bars and coins (pure investment gold, as opposed to jewellery) in India's total gold demand has risen from 24% in 2020 to 32% in 2025 — meaning Indians are increasingly buying gold not just for weddings but deliberately as a financial instrument.

Crucially, approximately 85% of this gold is imported. Every tonne purchased adds directly to India's import bill and exerts pressure on the current account deficit and the rupee. This is the macroeconomic reality the PM is responding to.

But here is what makes the appeal complicated: gold import demand is not monolithic. It has two very distinct components with very different policy implications.

Ceremonial and jewellery demand — roughly 65–68% of total consumption is driven by weddings, festivals, and gifting. It is largely inelastic to price and largely inelastic to government appeals. It is also, for most of the households involved, non-negotiable. A wedding is a once-in-a-generation event. The gold bought for it carries social, cultural, and financial significance that no government scheme can easily replace.

Investment demand — bars, coins, gold ETFs, and digital gold — is roughly 32% of total and rising. This is where household behaviour can be redirected. This is where the policy target genuinely lies. And this is where smarter instruments can make a real difference.

A blanket appeal to stop buying gold treats both segments identically. It should not. What follows is a framework for the investment component specifically, with honest guidance on the ceremonial component too.

The instrument the Government built — and then abandoned

Before we discuss what is available today, we must acknowledge the instrument that was the best answer to this problem — and which the government discontinued precisely when it was most needed.

The Sovereign Gold Bond (SGB) scheme, launched by PM Modi himself in November 2015, was a genuine policy innovation. It allowed households to invest in gold — receiving the full benefit of gold price appreciation — without triggering any physical gold import. The government issued a rupee-denominated bond whose value tracked gold prices exactly. Investors also earned 2.5% annual interest. On an 8-year hold, capital gains were entirely tax-free. The instrument could be used as loan collateral. It ticked every box.

If a family invested ₹2 lakh in an SGB instead of physical gold, the country saved the foreign exchange equivalent of that purchase entirely. No gold needed to be imported. The household's wealth moved with gold prices as if they owned the metal. The national interest and the household interest were perfectly aligned.

The scheme was discontinued in 2024. The reason was fiscal: as gold prices surged, the government's redemption liability — having to repay investors at market prices — became expensive to honour. In other words, the government cancelled the very protection it had promised households at the exact moment when gold was performing best. No new tranches have been issued since.

This matters for our discussion because it reveals something important: the policy instinct to redirect gold demand into paper instruments was correct. The execution failed not because households rejected the idea but because the government's own fiscal management of the scheme was inadequate. The solution is to redesign the instrument, not to abandon the concept.

What you should actually do: A practical household framework

Given where things stand today — no new SGBs, rising gold prices, a government appeal to reduce imports — here is an honest, instrument-by-instrument guide.

For your wedding and ceremonial gold: Buy smarter, not less

The PM's appeal to skip gold at weddings will not — and should not — result in families giving up one of the most deeply embedded financial and cultural traditions in Indian life. But there is a smarter way to buy ceremonial gold that reduces both your personal cost and the national import burden:

Buy only BIS 916 hallmarked jewellery. Mandatory hallmarking, now enforced across most of India, means you know exactly what purity you are getting. Unhallmarked gold is frequently sold at 22-carat prices but is closer to 18-carat quality. Hallmarked gold also commands better resale and pledge value.

Prefer exchange schemes over fresh purchases. Many jewellers now offer old-gold exchange programmes where existing family gold is melted and recast into new designs, with charges only for making. This generates zero new import demand while meeting the ceremonial need entirely.

Separate the making charge from the gold value mentally. Making charges on jewellery range from 8% to 25% of the gold value — this is pure cost, not investment. For gold you are buying as savings rather than to wear, avoid high making-charge items. Simple bars and coins carry making charges of 1–3%.


For your investment Gold: Paper is strictly better than physical

If your primary purpose in buying gold is wealth preservation, inflation hedging, or long-term savings — not wearing it or pledging it locally — then financial gold instruments are superior to physical on every measurable dimension. Here is a clear comparison:

Gold ETFs are exchange-traded funds backed 1:1 by physical gold held in bank vaults. They track gold prices in real time, can be bought and sold in a demat account in seconds, carry no storage risk, no purity uncertainty, and cost a fraction of what physical gold costs (no making charges, no wastage, annual expense ratio of 0.4–0.5%). For FY26, long-term capital gains on gold ETFs held over 24 months are taxed at 12.5% — broadly comparable to physical gold taxation.

The one honest limitation: gold ETFs still require physical gold to be imported to back the units. They reduce your transaction costs but do not eliminate India's import burden. They are the right choice for the investor; they are not the macroeconomic panacea.

Gold Mutual Funds invest in gold ETFs through the familiar SIP wrapper — no demat account needed, starting from ₹500 per month. For the large middle-class segment that has a SIP habit but not a trading account, gold mutual funds democratise access to financial gold entirely. This is the most accessible on-ramp for first-time investors and is available through every bank and mutual fund platform.

Digital Gold (available on Paytm, PhonePe, Google Pay, MMTC-PAMP) allows purchases from as little as ₹1, stored in insured vaults, with physical delivery available above a threshold. It is unregulated relative to ETFs and SGBs — vault custodian risk is real — but as an accumulation vehicle for small, frequent purchases, it works well. Use it to accumulate, then convert to ETF once you cross ₹10,000.

Secondary Market SGBs — existing SGBs can still be bought and sold on the NSE and BSE secondary market, often at a small discount to the prevailing gold price. For a patient investor with a 3–8 year horizon, this remains the single best gold instrument available: gold price appreciation plus 2.5% annual interest plus tax-free capital gains at maturity. No new tranches are being issued, but secondary market liquidity exists. Check with your broker.

The honest portfolio split every household should consider

Rather than replacing gold, the practical goal is to restructure how you hold it. Here is a suggested framework based on purpose:

Purpose	Best Instrument	Why
Wedding/gifting/ceremonial	Physical (BIS 916 hallmarked)	Unavoidable; but buy smart
Emergency liquidity reserve	Physical coins/small bars	Pledgeable anywhere, instantly
Systemic savings/ wealth building	Gold ETF or Gold MF via SIP	No making charges, liquid and regulated.
Long horizon (6-9 years)	Secondary market SGB’s	Best risk-return in the category
Small frequent accumulation	Digital gold – convert to ETF	Low entry barrier

The key principle: keep physical gold only where its physical nature is essential — for ceremonies and for local collateral. For everything else, financial gold instruments give you the same economic exposure with zero storage risk, lower cost, and in the case of SGBs, additional interest income.

What the Government should do — not just ask

An appeal, however well-intentioned, is not a policy. India has tried raising gold import duties (to 15% in 2022, cut back to 6% in 2024), restricting imports through nominated agencies, and launching the Gold Monetisation Scheme — which was discontinued — and the SGB scheme — also discontinued. In virtually every case, annual gold demand has reverted to the 700–900 tonne band regardless.

The reason is simple: you cannot appeal away a rational economic behaviour. As long as fixed deposits deliver negative real returns after tax and inflation, as long as equity markets are inaccessible to Tier 2/3 India, and as long as gold remains the most reliable collateral for the informal economy, households will buy gold. The architecture of alternatives must be made genuinely compelling — not just available.

Three specific things would make a measurable difference:

Revive the SGB with a redesigned liability structure. A market-linked redemption cap, or a partial inflation-indexed structure, could limit the government's upside liability while still giving households the gold-price exposure they seek. The forex saving from even 10% demand substitution — 70–80 tonnes annually — would be substantial.

Fix the UAE-CEPA arbitrage. The India-UAE trade agreement effectively allows gold to enter India at 5% duty after last year's Budget cut. This loophole is a policy design error that inflates the import bill structurally. Correcting it addresses forex drain without touching household behaviour at all.

Invest in the gold loan ecosystem. India's 25,000-tonne household gold stock is the world's largest distributed collateral base. The RBI's 2025 Lending Against Gold and Silver Collateral Directions, if implemented well, could expand financial inclusion by an estimated 55% through gold-backed credit by 2030 — turning what critics call "idle" savings into working capital for MSMEs, farmers, and small entrepreneurs. This transforms gold from an import problem into a development asset.

The bottom line

PM Modi's Hyderabad appeal deserves to be taken seriously — not dismissed as political rhetoric. The macroeconomic pressures he was responding to are real. A $72 billion gold import bill, a weakening rupee, and forex reserves under pressure from oil shocks and FII withdrawals are legitimate concerns that warrant a public conversation.

But the conversation needs to be more precise than "stop buying gold." Indians buy gold because it works. It has delivered 11% annualised returns over 25 years. It requires no intermediary. It is universally accepted as collateral. It has protected family wealth through every economic shock from 1991 to the COVID pandemic to the current West Asia crisis.

The right ask is not to stop buying gold. It is to buy it smarter. To hold the investment portion in financial instruments that give you identical economic exposure without the import cost. To use the government's own SGB scheme — when it is revived — rather than physical bars. To pledge rather than sell when you need liquidity. To separate the ceremonial from the financial in your thinking about gold.

India's households did not build a $2.4 trillion gold reserve by being irrational. They built it by being prudent in a system that gave them limited alternatives. The answer to that is better alternatives — not a clarion call to abandon the one that has always worked.


[Data sources: World Gold Council (Gold Demand Trends 2024, Q1 2025); Reserve Bank of India; Morgan Stanley India Research (October 2025); HSBC Global; 5paisa Research; Kotak Neo; Value Research; Business Standard; Ministry of Commerce & Industry; National Health Authority (PM-JAY)].