Gold in India: Culture, Collateral, and the Cost of a Broken System

Gold has dominated headlines this year, from soaring prices to high-profile smuggling cases. Just last week, it surged past the critical $3,000 mark for the first time, fueled by investors flocking to this safe-haven asset amid economic uncertainty triggered by former U.S. President Donald Trump’s tariff war.

As one of the largest consumers of gold, India holds a unique place in the global gold market. With gold serving as a preferred savings vehicle for millions of Indians, its influence runs deep through the fabric of the economy.

This article delves into India’s enduring and intricate relationship with gold—a connection rooted in tradition, emotion, and economic behavior.

The Economics of Gold: How Indian Households Shape National Trade Dynamics

India ranks as the second-largest gold consumer globally and holds the title of the world’s largest jewellery market — driven largely by the country’s vibrant and expansive wedding industry.

After real estate, gold holds the second-largest share in Indian household assets. Estimates suggest that around 16% of household wealth in India is stored in gold, a stark contrast to most other countries, where the figure typically ranges between 2–3%.

This deep-rooted demand for gold has significant economic implications. Since India produces very little gold domestically, nearly all of it is imported—putting pressure on the country’s foreign exchange reserves. As a result, gold imports also play a major role in widening the current account deficit (CAD), which broadly measures the gap between exports and imports.

In December 2024, nearly 8% of India’s total import bill was attributed to gold alone.
Back in mid-2013, then-Finance Minister P. Chidambaram publicly urged citizens to curb gold purchases, as rising imports were straining the current account. A high CAD can weaken the rupee, limit policy flexibility, and increase economic vulnerability.

Gold in India: From Rituals to Rural Finance

Gold holds a central place in Indian weddings, traditionally gifted by the bride’s family as a symbol of both financial security and social status. In many communities, the amount of gold presented reflects the family’s standing within society.

Beyond weddings, gold carries deep religious and spiritual significance. It is associated with Goddess Lakshmi, the deity of wealth, and is commonly offered in temples and used during religious ceremonies. Festivals like Diwali are especially marked by gold purchases, as it is believed to bring prosperity and good fortune.

Gold is also considered an auspicious gift, often exchanged during important life events — from births and weddings to anniversaries and housewarmings — serving as a lasting token of blessing, goodwill, and luck.

Beyond its cultural importance, gold is also valued for its role as a reliable collateral asset. In rural communities, gold remains the primary means of saving. For farmers and traders, it serves as a practical financial tool, allowing them to buy gold during times of surplus and use it as collateral for loans when cash is needed.

From a lender’s perspective, gold-backed loans offer a key advantage—the collateral is easy to repossess and can be quickly liquidated in case of default. For borrowers, gold loans provide a hassle-free financing option, as they do not require a credit history—making it an accessible and secure borrowing method.

Gold vs. Property: The Practical Choice in India’s Lending Landscape

Another factor that makes gold a more attractive asset in India is the nature of landholding and property-related complexities. Unlike many other countries, India’s housing loan market remains relatively underdeveloped—a fact reflected in its low mortgage-to-GDP ratio, which measures outstanding residential mortgage loans as a share of the country’s GDP.

India ranks among the countries with the smallest mortgage markets globally. One key reason for this is that property is a far more complex form of collateral than gold. 

A key reason behind this situation is India’s inefficient dispute resolution and contract enforcement system. According to World Bank data, it takes an average of 1,445 days to enforce a contract in India—more than double the OECD high-income country average of around 590 days. Even Sub-Saharan Africa fares better, with an average of 655 days!

As of December 2023, there were over 5 crore (50 million) pending cases in Indian courts. Notably, land and property disputes account for a major share of this backlog—66% of all civil cases are related to land issues, and about 25% of all Supreme Court decisions involve land disputes. Worse still, the average time to resolve a land acquisition case through the Supreme Court is an astonishing 20 years, underscoring the urgent need for legal and judicial reforms in land-related matters.

This places India among the worst-performing countries globally when it comes to contract enforcement. In the World Bank’s Ease of Doing Business rankings, India ranked 163rd out of 190 countries in the “Enforcing Contracts” category in 2020—highlighting a long-standing structural weakness. Poor contract enforcement undermines lenders’ confidence in the ability to recover property in case of default, making land a less reliable and inefficient form of collateral in the credit system.

Conclusion 

India’s bond with gold is far more than ornamental—it is a reflection of trust, tradition and a response to institutional inefficiencies. In a country where land ownership is fraught with legal ambiguity and contract enforcement is painfully slow, gold offers something rare: clarity, liquidity, and control.

From being the centerpiece of weddings to functioning as a rural savings instrument and dependable loan collateral, gold has become the financial backbone for millions. And while the global spotlight on gold may fluctuate with prices or policies, in India, the yellow metal remains a constant—an asset of choice in a system that often fails its citizens.

Until the structural issues plaguing property rights, land disputes, and judicial delays are addressed, gold will continue to thrive not just as a cultural artifact but as a practical economic necessity.

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