India’s Gold Reserves are rising, which indicates a strategic diversification of Foreign Exchange Holdings. Read here to learn more about the implications of rising gold reserves.
According to the Reserve Bank of India’s (RBI) latest data, India’s gold reserves have touched $102.3 billion, marking a significant milestone in the country’s foreign exchange management.
Gold now constitutes nearly 15% of India’s total forex reserves, a notable increase from around 7% a decade ago, indicating a strategic shift in the composition of India’s reserve assets.
India’s gold reserves
As of 2025, India’s gold reserves have risen to $102.3 billion, marking the first time the Reserve Bank of India (RBI) has held gold worth over $100 billion.
This increase has pushed the share of gold in India’s total foreign exchange reserves to around 15%, up from about 7% a decade ago.
The move reflects a conscious effort to diversify reserve assets amid global economic uncertainties, currency volatility, and inflationary pressures.
Composition of India’s gold reserves
Category |
Details |
Physical Gold Held in India |
Stored securely by the RBI in its vaults across India. |
Gold Held Abroad |
A portion of India’s reserves (mostly in London with the Bank of England) for liquidity and trade flexibility. |
Total Gold Holdings (2025) |
Approximately 822 tonnes, valued at $102.3 billion. |
Share in Total Forex Reserves |
Around 15% (up from 7% in 2015). |
Why Gold is Important for India’s Forex Reserves
Reason |
Explanation |
Diversification of Reserves |
Reduces overreliance on the US dollar and other major currencies. Helps insulate India from fluctuations in global currency markets. |
Hedge Against Inflation |
Gold preserves value and purchasing power, unlike fiat currencies that can depreciate due to inflation. |
Safe Haven Asset |
Gold tends to appreciate during geopolitical crises, financial instability, or global market volatility. |
Risk Mitigation |
Balances the risks associated with foreign currency revaluation and external shocks. |
Global Confidence |
Strengthens the international credibility of India’s economic management and financial resilience. |
Why is RBI Increasing Gold Reserves?
- Diversification of Reserve Portfolio:
- The RBI is gradually diversifying its foreign currency asset base to reduce overreliance on the U.S. dollar.
- This move aligns with global trends of de-dollarisation, where several central banks are expanding gold holdings to balance their reserve compositions.
- Risk Mitigation:
- Gold serves as a hedge against currency volatility and provides stability during global financial uncertainties.
- It helps offset revaluation risks that arise due to fluctuations in major currencies like the dollar, euro, or yen.
- Hedge Against Inflation:
- Unlike fiat currencies that lose value with inflation, gold retains purchasing power over time.
- Hence, it acts as a store of value and an inflation-resistant asset, strengthening the real value of foreign reserves.
- Safe Haven During Crises:
- In periods of geopolitical conflict, banking crises, or global recession, gold prices typically rise.
- Holding gold enhances India’s financial resilience, providing liquidity and stability in times of global stress.
Risks Associated with Increasing Gold in Reserves
- Reduced Liquidity:
- Converting gold into cash is slower and costlier than selling foreign currency assets.
- This can be a disadvantage during sudden capital outflows or emergency forex requirements.
- Zero-Yield Asset:
- Unlike government securities or foreign deposits, gold does not generate interest income, which may reduce the overall returns on reserve assets.
- High Storage and Security Costs:
- Physical gold must be stored securely in vaults, leading to higher insurance and storage costs.
- Some portion of India’s gold reserves is also held overseas (such as with the Bank of England), adding custodial expenses.
Components of India’s Foreign Exchange Reserves
India’s total foreign exchange reserves are composed of four major elements:
Component |
Description |
Denomination/Institution |
Foreign Currency Assets (FCA) |
Reserves held in foreign currencies such as the US Dollar, Euro, Pound Sterling, Yen, etc. |
Managed by RBI through deposits and securities. |
Gold Reserves |
Physical gold held domestically and with foreign central banks; now valued at $102.3 billion. |
Serves as a diversification and inflation hedge. |
Special Drawing Rights (SDR) |
An interest-bearing international reserve asset created by the IMF to supplement global liquidity. |
Allocated by the IMF to member nations. |
Reserve Tranche Position (RTP) |
Portion of a country’s quota in the IMF that can be accessed without stringent conditions. |
Reflects a member’s contribution and withdrawal rights. |
Strategic Significance
- Macroeconomic Stability: By balancing between currency assets and gold, India strengthens its resilience against global economic shocks.
- Global Trend Alignment: Central banks across Asia and emerging economies are increasing gold holdings as confidence in the dollar weakens due to monetary tightening and geopolitical fragmentation.
- Long-Term Security: The steady accumulation of gold supports India’s vision of financial sovereignty and shields its reserves from external vulnerabilities.
Conclusion
The RBI’s strategy to increase gold reserves reflects prudence in reserve management amid growing global uncertainty and currency instability.
While gold may lack yield and liquidity, its intrinsic stability, universal acceptance, and inflation-hedging properties make it an indispensable component of India’s financial armour.
Going forward, maintaining a balanced mix of gold and foreign assets will be key to ensuring that India’s reserves remain both profitable and resilient, supporting macroeconomic stability and strategic autonomy in global finance.
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