The continued depreciation of the Indian rupee raises an important question: Can the currency of a nation with one of the world’s largest economies, substantial gold holdings, large foreign exchange reserves, vast natural and human resources and one of the world’s biggest domestic markets continue to weaken indefinitely without serious policy concern?
India is not a resource-poor country, nor is it an economy lacking productive capacity or domestic demand. The country possesses considerable economic resilience backed by:
• Estimated privately held gold reserves of nearly 35,000 tonnes,
• Official foreign exchange reserves of around US$690bn (billion),
• A vast and expanding domestic market,
• Significant potential for growth in tourism, healthcare, higher education and related infrastructure,
• Strong agricultural, industrial and services sectors,
• One of the world’s largest and youngest workforces,
• Significant overseas Indian savings and investments,
• Growing technological and entrepreneurial capabilities, and
• A large global community of non-resident Indians (NRIs) and overseas citizens of India (OCIs) willing to participate in India’s economic growth story.
In these circumstances, persistent weakening of the rupee should not be viewed merely as a routine market phenomenon. It requires deeper policy attention and strategic economic management.
Gold Cannot Remain Economically Idle
India continues to import large quantities of gold using valuable foreign exchange while massive quantities of privately owned gold remain economically idle.
If gold cannot support the nation during periods of exchange-rate pressure, imported inflation and external uncertainty, the country’s approach towards gold management requires serious reconsideration.
The time may have come to revisit the concept of a national gold policy aimed at converting part of the country’s dormant gold wealth into productive financial strength.
A properly structured gold bank or strengthened gold monetisation framework could:
• Increase confidence in the rupee,
• Supplement foreign exchange stability mechanisms,
• Reduce pressure on external borrowing,
• Moderate imported inflation,
• Improve financial resilience during global instability, and
• Encourage inward remittances and long-term wealth creation through suitable incentives.
Gold-backed financial instruments and sovereign guarantees could help transform idle household assets into productive national resources without undermining ownership rights.
Exchange-rate Stability Is an Economic Necessity
A continuously depreciating currency affects every sector of the economy. It raises import costs, fuels inflation, increases business uncertainty and weakens purchasing power.
While moderate exchange-rate flexibility may be necessary in a market economy, excessive and prolonged depreciation of the rupee can adversely affect economic confidence and long-term stability.
India, therefore, requires a more strategic exchange-rate management approach based on:
• Strong reserve management,
• Better control over speculative flows,
• Productive deployment of national resources,
• Reduction in avoidable imports,
• Encouragement of stable long-term capital inflows, and
• A forex stabilisation fund supported by gold-backed mechanisms and dynamic policy measures.
The objective should not be artificial appreciation of the rupee, but the prevention of disorderly and avoidable weakening inconsistent with the country’s economic fundamentals.
Mobilising NRI Foreign Exchange Resources
India’s overseas citizens represent a significant source of economic strength and foreign exchange stability.
Many NRIs and OCI-holders possess substantial foreign currency savings abroad. Special incentivised investment channels with exchange-rate protection, sovereign backing and attractive long-term returns could encourage larger inflows into productive sectors of the economy.
Such schemes could support:
• Infrastructure financing,
• Manufacturing growth,
• Technology development,
• Long-term capital formation,
• Strengthening of foreign exchange reserves, and
• Expansion of agriculture and export-oriented industries.
Confidence, transparency and policy stability are essential for attracting these resources.
Curbing Speculative and Illicit Forex Outflows
Leakages through hawala transactions, round-tripping of funds, under-invoicing and over-invoicing of trade and misuse of remittance channels weaken the integrity of the financial system and place unnecessary pressure on the rupee.
Strong enforcement supported by technology, artificial intelligence (AI), data analytics and coordinated regulatory oversight is essential to minimise such distortions.
Economic discipline and ethical business practices are as important as monetary policy in preserving currency stability.
Need for a Stronger Exchange-eate Stabilisation Mechanism
India may also consider strengthening the concept of an exchange-rate stabilisation fund backed by sound reserve management and, where appropriate, gold-linked instruments and long-term sovereign financial planning.
The rupee must reflect not merely short-term speculative market behaviour but also the real strength, resilience and long-term potential of the Indian economy.
Conclusion
A nation possessing substantial gold reserves, large foreign exchange holdings, a vast domestic market, demographic strength and growing economic capability should not reconcile itself to the continuous weakening of its currency as an unavoidable reality.
India possesses the resources, resilience and institutional capacity to build a stronger, more stable and globally respected rupee through prudent economic management, disciplined governance, productive utilisation of national wealth and long-term strategic thinking.
The intelligent use of AI and advanced technology-driven systems in financial regulation, trade monitoring, exchange management, capital flow supervision and detection of irregular transactions could significantly enhance India’s foreign exchange earning potential while conserving valuable foreign exchange resources.
If supported by prudent deployment of the nation’s gold reserves through carefully designed financial mechanisms, the present trend of rupee depreciation could be substantially contained in a manner beneficial to industry, trade, investors, exporters, consumers and citizens.
The challenge before the nation is not the absence of strength, but the timely and visionary utilisation of that strength in the larger national interest.
Loka Samastha Sukhino Bhavanthu.
(Dr TV Gopalakrishnan is the retired chief general manager of Reserve Bank of India-RBI)
Lot of gold is lying idle with temples, various religious trusts.Need to make the producive use of the same .