EGRs Risk Turning Gold Imports into a Vicious Cycle

The Indian government is considering a plan to formalize existing household gold into the financial system through electronic gold receipts (EGRs), but experts caution against incentivizing fresh imports of gold.

EGRs, set to be launched by the National Stock Exchange on October 15, allow households to convert physical gold into dematerialized holdings that can be traded through a demat account. This initiative aims to make it easier for individuals to formalize their existing gold holdings and reduce the need for physical transactions.

However, experts warn that policies encouraging households to buy more newly imported gold could add to the country's demand for foreign exchange and increase the trade deficit. The Reserve Bank of India reported a widening current account deficit in the first quarter of 2026-27, with imports playing a significant role.

The World Gold Council data show that domestic gold prices remained 59% above their level a year earlier despite a 4% depreciation of the rupee against the dollar. This highlights the need for households to be cautious when buying gold in response to currency weakness, as it can create another demand for foreign exchange.