Dichotomy of Gold: Elistism to Financial Insecurity
BY Sneha Deka/ JUNE 21, 2025
DESIGNED BY Loyana Chakraborty
Once a powerful symbol of wealth and authority, gold in India now embodies a paradox, morphed into a rural lifeline in the face of institutional fragility, contemporary economic vulnerability, and a long history of financial exclusion.
n India, gold’s shimmering allure has long represented both cultural reverence and economic resilience. Once draped over the shoulders of the elite as a symbol of status, power and social standing, it now nestles quietly in rural households as a shield against financial insecurity. Yet, beyond the confines of the affluent, gold is a long way from the granduer of elite exhibition today. For a broad segment of society, gold is more about surviving than it is about display. This enduring significance reflects gold's profound position in Indian society for centuries. It makes up an integral part of India’s socio-economic fabric, transcending its functional use to emerge as a tradition. The legal property of women, popularly termed in India as Stree Dhan, does not merely signify a tradition but also serves as a source for economic empowerment and financial security for women in a patrilineal dynamic (Kumari, Nerlekar, and Raut, 2024). In addition to that, gold reasserts its central role in religious ceremonies as tributes to gods, embodying its converging roles as a spiritual and economic asset.
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Once draped over the shoulders of the elite as a symbol of status, power and social standing, it now nestles quietly in rural households as a shield against financial insecurity.
The prominence of gold in India is evident from the fact that India serves as the world’s largest gold consumer, accounting for over 25% of global demand (World Gold Council, 2020). However, this interpretation conceals a deeper economic fact: the country’s entrenched intimacy with gold is often rooted in inequality. Apart from its economic significance, gold holds psychological attributes as well. Its tangible nature instills a sense of security and control that the abstract financial instruments, like stocks and bonds, frequently fail to provide. For many women across socio-economic strata, particularly in rural areas, gold’s value elevates beyond mere financial worth, emerging as an informal safety net. It offers emotional reassurance, is often a source of pride, and serves as a critical mechanism of resilience in the backdrop of economic uncertainty (Kakkar & Chitrao, 2023 as cited in Kumari et al. 2024). Despite being the world’s largest consumer of gold (Angel One, 2024), procuring it is generally fraught with challenges. Contrary to the perceived importance that gold holds in Indian culture, its equivalent economic significance is often overlooked and misunderstood.
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Drawing from Kautilya’s Arthashastra, an ancient economics and statecraft treatise, gold hoarding in pre-modern India was substantially an outcome of sustained trade surpluses, meaning production consistently exceeded consumption (Swarajya, 2019). This accumulation was not merely incidental but also deliberate, guided by state policy. Kautilya wrote, ‘A king shall have in his treasury an amount equal to one-fourth of his kingdom’s revenue in gold andprecious metals’ (Book II, Chapter 8), underscoring the institutionalised role of gold in governance. The text emphasises hoarding of wealth, predominantly in the form of gold and precious metals, as the central principle of statecraft. Kautilya instructed monarchs to hoard great reserves in times of peace as a means to stabilise the kingdom for potential future emergencies, institutionalising instead the concept of preservation of wealth rather than circulation (Sihag, 2007). This imbalance in economic output was grounded in the unequal distribution of wealth. In comparison to other contemporary economies, ancient India saw a significant concentration of wealth in the hands of the elite.
Gold Hoarding in Ancient India
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Throughout history, India’s gold hoarding mirrored a broader global pattern. The late Roman Britain witnessed an abundance of gold and silver outwardly as a defense strategy against the decline of the imperial dominion and infilteration of foreign contenders (Guest, 2014). Simultaneously, the Han dynasty of China prolonged massive reserves of gold within the imperial regime, signifying the sovereign authority and economic regulation (Dubs, 2011). Likewise, at Tell el-‘Ajjul, the Hyksos’ possession of a sizable gold hoarding is indicative of the necessity of protecting wealth against the extremities of imminent conquests as well as demands of warfare (Google Arts & Culture). Therefore, the patterns of gold hoarding among the cross cultural diversity, highlights its perpetual relevance in ancient statecraft and economic practice by unveiling its dual function as a means of monetary power and a safeguard against socio-political upheaval.
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Through evidence of the wages in administration during the Mauryan era, as mentioned in the Arthashastra, Kautilya indicates a vertically segregated economic system with significant income differences. The book highlights considerable economic differences through the prominent wage scales in the Mauryan bureaucracy. For example, the 50:1 wage proportion, where ministers could get as much as 48,000 panas a year while the manual labourers would settle for around 500 to 1,00 panas, reflects the concentration of wealth among the elite (Kangle, 1960). Set against the context of this economic inequality, the wage ratio reveals a deeper social pattern often rooted in socio-culutural hierarchies of society that have persistently shaped worth, status and dignity associated with different forms of work. This devaluation of manual labour operates beyond the economic domain entering the social realm to conform to and perpetuate systemic inequality. Consequently, dominant ideologies ascribe higher status to intellectual and administrative labour compared to physical and reproductive labor to justify exploitative labour practices. The disproportionate wealth, coupled with a hierarchical social order, also suggests that the rich had a lower marginal propensity to consume (MPC), meaning they tend to spend less of any extra money they receive. Individuals with a lower MPC are more likely to invest or save their additional income rather than use it for immediate consumption. This economic mechanism would have produced repressed domestic demand, causing chronic trade surpluses, which tended to be stored in the form of gold and other precious commodities. While the state and the elite’s accumulation of gold and wealth ensured stability in the system, it clearly did not lead to reinvestment in the economy or common prosperity. Rather, this extensive gold hoarding, heightened by high inequality, made gold emerge as a tool for retaining wealth instead of circulating it within the economy.
‘A king shall have in his treasury an amount equal to one-fourth of his kingdom’s revenue in gold and precious metals’(Book II, Chapter 8).
​The concept of “opportunity hoarding”, put forth by Charles Tilly (1998) in his theory of Durable Inequality, refers to the system where groups at the lower rungs of society are denied essential resources and oppurtunities as a result of the monoplisation by privileged groups. Owing to this, social mobility is restricted to consolidating benefits within particular groups: a strategy that helps maintain disparities over time. This theory is utilised by David Mosse to explore caste in India and elaborates on resource hoarding as a mechanism for preserving economic and social power (Mosse, 2018). Upper castes strengthened wealth concentration within their own groups by amassing and limiting access to gold, a valuable and culturally significant asset. Lower castes have historically had limited capacity to amass and preserve wealth in the form of gold due to their lack of access to comparable financial instruments, land ownership, and stable income. This leads to categorical inequality in the form of a self-reinforcing cycle of exclusion. The gold amassed over the years turns into a type of intergenerational capital that widens the wealth gap. Consequently, upper castes hoarded both material and symbolic capital, and thus, consolidating caste rigidity and exacerbating class divides by curtailing the wider flow of capital. This inadvertently denies marginalised communities entry to opportunities and amplifies class differences.
​The practice of gold hoarding in Mauryan period and contemporary in India signifies a deep convergence, especially among the rural poor. Contrary to the traditional notion of gold being synonymous with status and wealth, modern rural India perceives gold as an essential commodity for survival, especially in the absence of formal financial services. Among several explanations for the transition of gold hoarding from the elite to the rural poor, the fundamental cause is rooted in the disruptions during British Colonial rule.
Evolution of Gold hoarding in India
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Among several explanations for the transition of gold hoarding from the elite to the rural poor, the fundamental cause is rooted in the disruptions during British Colonial rule. The Permanent Settlement was introduced as a system of land revenue, where the landowners called zamindars were regarded as the sole hereditary proprietors and were expected to provide the colonial government with a yearly revenue amount. This demand for this revenue was constant and unaffected by shifts in the economy or agricultural productivity. Coupled with the consistent dismantling of India’s indigenous industries and exploitative land revenue systems, the rural economy was reduced to severe instability. The land owners, now bound by the obligations of fixed revenue, transferred the burden to the peasantry. A coherent consequence of increasing rents and diminishing returns in agriculture aggravated rural poverty and led to the peasantry's radical shift towards portable, long-term, and secure values.
​An econometric analysis done by Kannan and Dhal (2008) suggests that Indian gold demand is influenced by a complex set of interrelated socio-economic variables. The results imply that although gold prices are inversely related to demand, real per capita income, particularly rural income, has a substantial positive relationship with gold consumption. This trend inarguably indicates gold’s as a preferred savings tool in regions lacking formal financial instruments. The rural poor increasingly use gold to obtain loans or as collateral in emergencies. A 2017 FinDev Gateway report highlights that gold-based financial products have emerged to complement the economic existence of rural Indians. Owing to the limited exposure to formal financial services, dependence on gold for liquidity, typically through gold loans, has grown (FinDev Gateway, 2017).
The possession of an opulent metal like gold by the poorer households was primarily a compulsion born from economic hardship. This can be mainly imputed to the persistent and deeply embedded customs of inheritance, owing chiefly to the dowry tradition. Contemporary research has posited a strong relationship between dowry and propagation of gold among the subordinate social classes. These classes, amid economic needs, view the purchase of gold through the rites of marriage not solely as a cultural obligation but a necessary provision against contingencies (Bhalotra, S.R., et al., 2016). A compelling indication of gold hoarding can be found in the patterns of liquidation of gold during the times of crisis. As noted by B.R. Tomilson in The Economy of Modern India, 1860-1970, colonial exploitation of resources, finance and fiscal systems shifted risk, not just income. Evidence of the large-scale sale of gold by marginal agrarian groups in the early 1930s is the large quantum of privately owned gold that was exported from India in 1931, which signifies the financial hardship that forced these groups to sell their assets (Tomlinson, 1993). This marked a sharp deviation from previous periods, when gold amassing represented excess and status; under colonialism, it symbolised survival in the context of worsening structural poverty.
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Another significant reason often cited in discussions surrounding informal gold-based credit is the increase in gold hoarding among India's rural poor, which can be attributed to the economic reforms of 1991. These reforms were aimed to liberalise trade, minimise government intervention, and integrate India into the global economy. While promoting growth, they also deepened rural-urban inequalities, especially regarding access to financial resources. Post liberalisation, rural India, riddled with low productivity and limited banking access, became more vulnerable to market fluctuations. Small farmers faced volatile international prices, reduced subsidies, and rising costs, leading to declining incomes. Without adequate financial support or safety nets, rural communities increasingly relied on informal methods like gold hoarding for wealth preservation and survival (Müller & Patel 2004).
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This trend further manifests itself in the regional distribution of gold loans across India. Semi-urban areas hold the highest share at 42%, followed by rural areas at 35% and urban areas at 23%. Similarly, 44% of active gold loans are in semi-urban areas, 37% in rural, and only 19% in urban areas. These figures highlight gold’s role as a collateral for communities facing barriers to formal credit particularly in rural and semi-urban India, unlike urban areas where a broader range of financial services are more accessible (Bank, NBFC, 2024). Borrowers often face challenges ranging from lack of transparency and vague repayment schedules. Money lenders frequently extend loans under poorly communicated and intentionally ambiguous conditions, using opaque or complex language, which a majority of borrowers often struggle to understand. These practices facilitate exploitation,trapping individuals in cycles of debt.
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Regional Gold Distribution in India
Percentage of Active Gold Loans
For the agrarian families, gold transformed into a substitute currency convertible into cash when needed for medical bills, weddings, or farm investments. Another report by The Hindu highlights that the access to capital that is being via gold-backed loans has profoundly encouraged entrepreneurship and advanced economic growth (The Hindu, 2018). Conversely, it also highlights that the system is burdened with challenges, particularly high interest rates and the likelihood of debt traps, since most of the gold loan providers remain unregulated. In an attempt to formalise gold-backed credit and enhance liquidity, Non-Banking Financial Companies (NBFCs) have recently introduced digital gold platforms. Yet, despite their commendable framework, these schemes often exclude the rural poor: who lack access to formal financial institutions and necessary technology. As a result, these digital platforms, while theoretically inclusive, inadvertently reinforce existing economic inequalities. Without targeted efforts to bridge these infrastructural gaps, the goals of digital gold remain unfulfilled (Bangar, 2025).
Wider economic impacts
Gold hoarding among the rural poor today, signifies not merely financial insecurity but, more profoundly, a manifestation of long-standing systemic inequality. The formal finance system, dominated by urban-centred banks and institutions, has historically imposed limited access to credit and saving instruments (Totala, 2018). This trend reflects the persistent dualism in the Indian economy, where wealth accumulation and preservation are governed by entirely different logics dependent on class and access. The unequal distribution of wealth prevalent in ancient times underpins present day financial habits: the affluent invest in products that multiply wealth, while the poor’s utitlisation of gold remains static in response to necessity. Consequently, a large number of household savings remain in unproductive assets, suppressing domestic capital formation and economic growth. The legacy of inequality continues to prohibit wider economic development and sustain financial inclusion (Galor & Zeira, 1993).
The affluent invest in products that multiply wealth, while the poor’s utitlisation of gold remains static in response to necessity.
Gold hoarding in India imposes a significant constraint on the country’s economic potential. According to the World Gold Council, the estimate of household gold holdings in India amounts up to 25,000 tonnes (World Gold Council, 2021). This amount is higher than the total gold reserves of the top 10 central banks in the world, such as those of the United States (8,133.5 tonnes), Germany (3,351.2 tonnes), and others (ETBFSI Research, 2025). In contrast, as of December 2024, the Reserve Bank of India (RBI) had officially held only 876.18 tonnes, highlighting the vast gap between private and state reserves. Despite its high symbolic, financial, and emotional value, gold remains an idle investment when not mobilised. While the Arthashastra identifies gold as a source of economic security, contemporary economists have raised concerns about its wider ramifications. When the majority of domestic savings are frozen in gold, stored in households or temples, it drags the liquidity in the financial system down, thereby restricting the capital available for productive investment. (Patni, I., and Choubey, S., 2016). Warren Buffett, the renowned American investor, famously criticised gold as an unproductive asset, remarking that it simply “sits there,” neither generating income nor fostering economic progress. (Investor News Network, 2025).
It simply “sits there,” neither generating income nor fostering economic progress. (Investor News Network, 2025.
The idle capital additionally piles up to influence macroeconomic tensions. The rising gold consumption drives imports, worsening the balance of payments, leading to a strain on the foreign exchange reserves. An immediate outcome of this cumulative reaction is currency depreciation (Patni and Choubey, 2016). Although it may seem that India has a high aggregate savings rate, the prevalence of physical assets over financial savings weakens economic growth. This results in a paradox: despite widespread individual prosperity reflected in private gold holdings, the economy suffers from limited investment in public goods. Gold hoarding, in this manner, transcends the spectrum of individual choice and emerges as a public economic issue. It expresses and maintains systemic inequality, restricts capital mobility and poses a structural barrier to long term growth and monetary stability.
Pictured: Illustration by David Plunkert via pinterest
Conventionally monetary policy faces considerable challenges when large volumes of private wealth are held in gold outside the formal financial system. For instance, central banks struggle to keep inflation in control and ensure economic stability when a substantial amount of wealth is not circulating the economy. Moreover, during economic downturns, individuals can stock up on gold as an inflation hedge, which can dampen the success of monetary policy. A study by Urjit R. Patel, former Governor of the Reserve Bank of India, links India’s chronic inflation to the large private holding of gold, a major component of household wealth and not generally available for economic circulation. Although the relationship is not explicit, this scenario points to the wealth effect generated through gold hoarding reducing the efficacy of monetary policy.
On account of prevailing macroeconomic concerns, the government has occasionally made periodic revisions of the customs duties on gold imports to curb excessive demand and protect the current account balance. At certain periods, these duties did fluctuate, between meager 2% to as high as 12.5% in 2019 (World Gold Council, 2019). In addition, instituted diverse measures intending to restrain gold imports. Among such measures, the introduction of the Gold Monetisation Scheme and custom duties remains prominent. The Gold Monetisation Scheme: a government-run initiative, launched in 2015, makes it easier for people and organisations to deposit their unused gold holdings into banks, which are then transformed into common gold bars or coins (RBI, 2015).
Although considerable measures were undertaken, the degree of success of such policies has been largely hindered by the longstanding socio-cultural tendencies of the Indian populace. The tendency to hoard gold in physical possession rather than submitting it to the official channels of finance is strictly maintained in Indian society. It is intricately associated with religious beliefs, rituals, marriage ceremonies, and celebratory events. This cultural persistence hinders policy success, as deep-rooted trust and emotional ties make many reluctant to mobilise gold through formal channels, limiting its economic potential.
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Pictured: Illustration by Unknown via pinterest
The message for contemporary India is clear: systemic inequality deepens monetary exclusion and stifles economic growth. When an increasingly large share of the population finds itself struggling to move beyond non-productive wealth accumulation, unable to invest, innovate, or spend, the economy inevitably stagnates.
This cycle can be broken only through a coordinated and layered response. Fundamental to this discourse is that economic stagnation is produced as a result of inequality. Much of the economic pessimism surrounding India today has its roots from the prolonged priority given to security over participation. In a context of fragile institutional trust and limited social protections, the Indian household’s prioritisation of security is not conservatism but a rational response to structural uncertainties. Thus, authorities must introspect and reform financial institutions to ensure transparency, accessibility, and trust across all social segments. At the core, it is important to educate the public about the long-term advantages of investing and participating in the economy. Systematic education will disseminate financial knowledge and combat the tendency for people to merely accumulate idle wealth. The apprehension towards risk associated with economic participation will be minimised by the availability of financial instruments that are both easily accessible and tailored to fit the vibrant atmosphere in Indian society. Building this trust requires accountable systems and clear, consistent communication that alleviates fears and highlights the benefits of formal economic engagement. Crucially, widespread financial education is needed to overcome the tendency to hoard idle wealth and reduce risk aversion. Accessible and tailored financial instruments can foster participation in a diverse and vibrant society. It therefore, becomes imminently important to take immediate steps to broaden access to suitable financial instruments, otherwise India risks reinforcing cycles of wealth hoarding and economic exclusion. These barriers will continue to hinder India's growth and hold it back to achieve the status of a fully developed economy.
Keywords
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Gold, Gold loans, Financial insecurity, Economic inequality, Cultural symbolism, Wealth preservation, Rural finance, Stree Dhan, Women’s empowerment, Informal economy, Kautilya’s Arthashastra, Gold hoarding, Ancient economy, World Gold Council, Emotional value, Psychological security, Global gold reserves
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References
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