India has the 7th largest gold reserves in the world! Why is RBI buying gold and how does it help the Indian economy?

Today is Akshay Tritiya and buying gold is considered auspicious. But do you know that gold is considered a safe shelter property – not only by individuals but also by central banks. Which explains why central banks around the world have been purchasing fast gold in the last few years amid global economic instability.
From the shock of the Kovid epidemic to the Russian-Ukraine war and now from the tariff war triggered by the Donald Trump administration, gold prices are touching a high level of new lifetime, which are operating by central banks of major economies that keep the fundamentally protected foreign exchange reserves on gold.
The Reserve Bank of India (RBI) has been buying gold aggressively for the last few years. In FY 2024-2025, it bought 57.5 tonnes of gold – second highest annual purchase since December 2017.

India’s growing gold reserves

India, even the fifth largest economy in the world, also has the seventh highest gold reserves globally. Back in 2015, India was ranked 10th in the list of countries with the highest gold reserves.
The analysis of the World Gold Council data shows that the percentage of gold in India’s total foreign exchange reserves has increased in the last few years. 11.35% in the end of 6.86% to 2024 in 2021!
Forex reserves act as a pillow against economic shocks, help stabilizing the currency, manages inflation and is a major indicator of overall economic stability and fundamental power.
According to RBI data, RBI’s Gold Reserve stock has increased from 653 tonnes in FY 2010 to 880 tonnes in the end of March 2025. This is a 35% increase in just 5 years!

Why is RBI buying gold? Bose it on the dollar!

Madan Sabnavis, the chief economist of Bank of Baroda, says that the main idea for RBI may be to bring more diversification in foreign exchange holdings through gold holdings. “The dollar has become quite unstable over the last few years and has increased the price of gold as a safe shelter property,” he explains to TOI.
The US dollar is the world’s main reserve currency, which means that most countries keep their foreign exchange reserves in dollars, which also facilitates trade. But the central banks are now focusing on diversifying gold amid dollar volatility.
Experts think that with moving forward, there will be a tendency of central banks around the world that will maintain high gold reserves as a percentage of their foreign exchange reserves. Therefore, RBI will also continue to procure a large amount of gold to make high amounts of gold reserves.
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DK Srivastava, the Chief Policy Advisor of EY India, emphasized the need to diversify India’s foreign exchange portfolio at the time of global economic uncertainty.
“The dollar index has fallen from its peak of around 110 in January 2025, now the trend is expected to continue, and the USD may weaken. Therefore, it is prudent for RBI to increase gold stake and reduce the USD stake in its foreign exchange portfolio, “Srivastava explains TOI.
Ranan Banerjee. Power and leader, economic advisory services in PWC India also indicate an increase in volatility in US dollars. He said, “Spikes in the USD and in American Treasury Yields creates a risk on the reserves conducted by central banks in US dollars. There will be a general trend of central banks, which maintains the progressively high holdings of stores in gold,” he explained TOI.
“The approach to gold prices is also strong and hence the possibility of evaluation benefits on gold reserves will also be an incentive for RBI to keep high stores in gold,” he said.

How do high gold reserves help India?

The RBI is not only buying more gold, it is also coming back to India. A TOI report last year has revealed that since September 2022, RBI has shifted 214 tonnes back to India – it is all amidst global instability that the government believes that it is better to keep the high value of gold reserves at a domestic level.
Sachidanand Shukla, the chief economist of the group of Larsen & Toubro, says that by increasing significant amounts of gold holdings and storage in India, RBI has strengthened and diversified India’s foreign currency reserves amidst global geopolitical uncertainty and declining confidence in USD pledge.
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Shukla thinks that high gold reserves also stabilize the Indian economy and increase their global financial status. “It also aligns with a global trend of central banks that prefer gold as a safe property, ensuring long -term stability to India’s economy,” he explains TOI.
Srivastava of EY believes that with a great support for gold, it will be easy for India to motivate more countries to use the rupee in bilateral trade, as well as the UPI platform.
In addition, current trends indicate that the overall value of India’s foreign exchange reserves will be appreciated as gold continues to appreciate, he notes.
He said, “This will also benefit the government through high dividends from the RBI. In addition, global raw price prices fall and India’s dependence on USD for its imports decreases, the overall economy will benefit with the expansion of the amount of international trade,” they say.