Households weren’t hiding their heirlooms from thieves. They have been reacting to a brand new regulation from New Delhi
In September 1968, Parliament handed the Gold (Management) Act.
The coverage aimed to curb gold imports, preserve international alternate, and encourage residents to maintain their financial savings in banks quite than in bodily gold. To implement this, the federal government restricted the possession of gold bullion and mandated that every one new jewellery be made at a most purity of 14 karats, effectively under the normal 22 karats.
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As an alternative of decreasing demand, the regulation pushed the gold market underground. In a single day, thousands and thousands of odd households discovered themselves holding contraband, successfully turning 1000’s of properties into casual mini-vaults.
When Gold turned contraband
The roots of the coverage drive started earlier underneath Morarji Desai, who served as Finance Minister and later Deputy Prime Minister. India was affected by extreme international alternate deficits following the 1962 border struggle with China and subsequent financial misery. Seeing treasured international alternate reserves draining away to purchase imported gold bullion, the federal government sought to interrupt the nation’s historical bond with the yellow metallic.
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As per a report by The Financial Instances, the coverage logic on paper was easy:
- Prohibit residents from proudly owning gold in bars and coin kind.
- Limit goldsmiths and licensed jewellers to tight holding limits (as little as 100g for artisans).
- Power jewellers to craft gadgets solely in 14-karat gold (down from the customary 22K or 24K).
- Redirect personal wealth into public banks to gasoline nationwide improvement.
In actuality, the regulation didn’t fairly land as anticipated. To an Indian household, gold was not merely an asset; it was stridhan (a girl’s monetary safety), a sacred ritual asset, and an emergency hedge towards inflation.
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The resistance
The general public response was an instantaneous and overwhelming rejection. Indian consumers flatly refused to buy 14-karat gold, viewing the diluted alloy as a nasty monetary retailer of worth.
The financial fallout was extreme for conventional artisans. Members belonging to the normal Sunar (goldsmith) communities misplaced their livelihoods in a single day as a result of they lacked authorities licenses or prospects keen to purchase authorized 14K gadgets. Protests erupted throughout the nation as ancestral outlets shuttered. Based on archives in Enterprise Commonplace, as a result of authorized channels have been strangled, an unlawful parallel financial system crammed the void.
Underworld cartels working out of Bombay constructed huge networks smuggling pure 10-tola gold bars from the Center East by way of speedboats throughout the Arabian Sea. Gold was hidden inside ship engine blocks, automotive chassis, and diplomatic baggage, commanding a large 40% to 80% worth premium over London bullion costs
The 1990 repeal
By 1990, after 22 years of enforcement, the federal government conceded that the regulation had achieved the precise reverse of its targets. It had worn out conventional craftsmanship, created a sprawling black-market hawala financial system, and didn’t stem the lack of international alternate reserves.
On June 6, 1990, underneath Finance Minister Madhu Dandavate, the Gold (Management) Repeal Act was formally handed. The federal government acknowledged that it was much more wise to permit authorized imports, decrease duties, and earn tax income than to push all the commerce into the arms of prison syndicates.
The 1968 ban was not the one time gold altered India’s nationwide future.
1991 emergency gold airlift
Only one yr after the repeal, India confronted a catastrophic Steadiness of Funds disaster with international alternate reserves barely sufficient to cowl three weeks of imports.
An RBI operation rapidly turned some of the covert monetary missions in India’s historical past. The lenders insisted that the collateral needed to be bodily held outdoors India. This meant the gold couldn’t merely stay in RBI vaults whereas being pledged and it needed to be moved overseas. Officers first needed to determine bars that met worldwide bullion requirements. The gold was weighed, verified, insured and repackaged. Particular logistical preparations have been made to keep away from publicity.
Starting in early July 1991, the gold was transported underneath heavy safety from RBI vaults in Mumbai to the airport. Armed escorts accompanied the consignments. The shipments have been flown abroad in a number of tranches, largely to the Financial institution of England’s vaults in London. The operation concerned 46.91 tonnes of gold. Up to date accounts point out that the switch was carried out in 4 separate consignments.
The secrecy was not merely about safety. If markets had discovered beforehand that India was sending gold overseas to safe emergency funding, it may have triggered panic. Overseas banks might need lower credit score traces. Importers may have rushed to purchase {dollars}. Ranking businesses and lenders might need interpreted the transfer as proof that default was imminent.
Officers subsequently sought to finish the operation earlier than particulars turned broadly identified. Nevertheless, the secrecy didn’t final lengthy. Information experiences ultimately revealed that gold was being flown overseas. Pictures of bullion being loaded onto plane turned enduring symbols of the disaster. However by then, the cash had largely been secured and the fast hazard had eased.
Gold purchased time for 1991 financial reforms
The gold transactions didn’t resolve India’s structural issues however purchased treasured time. Inside weeks, the newly elected Narasimha Rao authorities and Finance Minister Manmohan Singh launched sweeping reforms. The rupee was devalued. Industrial licensing was dismantled. Commerce boundaries have been lowered and international funding guidelines have been liberalised.
The emergency funding raised towards gold gave policymakers respiration area to undertake these measures with out the fast menace of a funds collapse hanging over them. Importantly, India later repaid the loans and recovered the pledged gold. The nation didn’t completely lose its reserves.
From pledging gold to accumulating it
Thirty-five years later, the distinction may hardly be sharper. The RBI right this moment holds 880.52 tonnes of gold, greater than double the extent that existed across the time of the 1991 disaster. The central financial institution has repeatedly clarified in current months that its bodily gold inventory stays unchanged at 880.52 tonnes regardless of hypothesis about gold gross sales.
Gold has additionally turn into a bigger element of India’s exterior reserves. Based on RBI knowledge, gold’s share within the nation’s international alternate reserves rose from 13.92 per cent in September 2025 to 16.70 per cent by March 2026 and additional to 16.85 per cent in Could 2026. The worth of the RBI’s gold holdings has surged due to rising international bullion costs. The worth of gold held as an asset of the RBI’s Banking Division jumped greater than 63 per cent throughout 2025-26.
