India's Strategic Gold Reserves Growth

On the auspicious occasion of Akshaya Tritiya, gold buying is not just a tradition but a strategic move by the Reserve Bank of India (RBI). With the purchase of 57.5 tonnes of gold in FY 2024-2025, the RBI has significantly increased its gold reserves, marking the second highest yearly acquisition since December 2017.

India’s growing gold reserves have seen a remarkable shift from being ranked 10th in 2015 to securing the 7th position globally by 2024. The proportion of gold in India’s total foreign exchange reserves has surged from 6.86% in 2021 to 11.35% at the end of 2024.

The Rationale Behind RBI's Gold Buying Spree

Experts attribute this aggressive accumulation of gold to the volatility of the US dollar. "The dollar has tended to be quite volatile in the last couple of years and this has pushed up the price of gold as a safe haven asset," explains Madan Sabnavis, Chief Economist at Bank of Baroda. This diversification strategy aims to mitigate risks associated with dollar-denominated assets.

Benefits of Higher Gold Reserves for India

Increasing gold holdings and repatriating significant amounts to India not only strengthens the country's foreign exchange reserves but also stabilizes the Indian economy and elevates its global financial standing. Sachchidanand Shukla, Group Chief Economist at Larsen & Toubro, highlights that this move aligns with a global trend of central banks prioritizing gold as a secure asset.

Furthermore, DK Srivastava, Chief Policy Advisor at EY India, points out that a larger backing of gold could facilitate the use of the rupee in bilateral trade and enhance the UPI platform's global acceptance.