Recently, the Reserve Bank of India (RBI) has repatriated 102 tonnes of gold from the Bank of England (BoE) and the Bank for International Settlements (BIS). According to the RBI’s “Half Yearly Report on Management of Foreign Exchange Reserves” gold held domestically stands at 510.46 metric tonnes in September 2024. India’s total gold reserves held by the RBI amount to 854.73 metric tonnes.
According to the World Gold Council (June 2024), India ranks 8th in terms of sovereign gold holdings while the US tops the list. India’s gold holdings amount to 840.76 metric tonnes comprising 9.57% of its forex reserves. Other countries ahead of India in terms of gold holdings are Germany, Italy, France, Russia, China, and Japan.
India Repatriating Gold
- Reducing Geopolitical Risks: Countries prefer holding their gold reserves domestically to protect it from potential foreign sanctions or restrictions that could freeze or restrict access to assets held abroad.
- E.g., Due to sanctions by the US and allies amid the Ukraine war, Russia’s access to USD 300 billion in gold and foreign exchange reserves has been frozen.
- Increasing Market Confidence: Gold is seen as a “safe haven” asset, especially in emerging markets, and having it within national borders can boost public confidence in the financial system.
- Economic Sovereignty: India’s gold reserves now exceeds 101% of the India’s external debt which enhances India’s debt repaying capacity.
- Supporting Domestic Financial Markets: With gold physically present in India, the RBI has more flexibility to support gold-backed financial products in domestic markets.
- India’s government has promoted initiatives like Sovereign Gold Bonds (SGBs) to reduce dependence on physical gold imports.
- Global Trend of Gold Repatriation: There has been a broader trend of central banks moving gold back to their home countries, especially over the past decade.
- E.g., Venezuela brought gold back from US and European vaults in 2011 and Austria in 2015.
- Cost Savings: RBI typically pays insurance, transportation fees, custodial fees and vault charges to institutions such as the Bank of England or the Federal Reserve for holding their gold.
- By repatriating some of this gold, the RBI can reduce these recurring costs.
- Increasing Import cover: Import cover is a crucial trade indicator, reflecting reserves adequacy, which strengthened alongside the increase in foreign-exchange reserves.
- Current foreign reserves are sufficient to cover 11.8 months of import.
India’s Foreign Exchange Reserves
- Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
- India’s Forex Reserve includes Foreign Currency Assets, Gold reserves, Special Drawing Rights and Reserve Tranche position with the International Monetary Fund (IMF).
- India’s foreign exchange reserves position in October, 2024 was estimated at USD 688.27 billion.
It includes:
- Foreign Currency Assets (FCA) of USD 598.24 billion
- Gold worth of USD 67.44 billion
- Special Drawing Rights (SDRs) of USD 18.27 billion
- Reserve Tranche Position (RTP) of USD 4.32 billion.