Lok Sabha Question No. 1172 (UNSTARRED), answered on 2025-07-28
Subject: Impact of Gold Price in Core Retail Inflation
Ministry: FINANCE
Asked by: Thiru Dr. S Jagathratchakan

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 1172

TO BE ANSWERED ON 28.07.2025/ Sravana 6, 1947 (Saka)

## IMPACT OF GOLD PRICE IN CORE RETAIL INFLATION

## 1172. SHRI S JAGATHRATCHAKAN:

Will the Minister of FINANCE be pleased to state:

- (a) whether it is true that elevated gold prices have contributed to nearly 17 per cent of core retail  inflation  during  the  last  twelve  months,  as  per  recent  report  of  Credit  Rating Information Services of India Limited (CRISIL);
- (b) whether the Government is aware that this trend has disproportionately impacted household budgets in States with high gold dependency;
- (c) whether  any  study  has  been  conducted  by  the  Government  or  RBI  on  the  impact  of sustained  gold  inflation  on  the  consumption  and  savings  of  lower  and  middle-income families across the country, particularly rural women in Tamil Nadu;
- (d) if so, the details thereof; and
- (e) whether the Government has observed an increase in informal gold loans, distress sale of jewellery and pawn broking activities across the country due to rising gold inflation and if so, the measures taken by the Government in this regard?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)

(a) and (b): Based on the Consumer Price Index (CPI), the average monthly contribution of gold to core inflation (CPI excluding food & beverages and fuel & light) during the last twelve months (July 2024 to June 2025) is about 20 per cent. Gold in India serves a dual role-not only as a consumption item but also as an investment avenue, as it is considered a safe haven asset for hedging against uncertainties. Thus, an increase in gold price positively influences household  consumption  through  the  wealth  effect,  as  the  notional  value  of  existing  gold holdings appreciates. A sustained high gold price may have differential effects across States or population  groups,  particularly  those  with  greater  socio-cultural  and  economic  reliance  on gold, where gold purchase is traditionally mandated for social occasions. However, it can also be  viewed  as  a  conversion  of  one  asset  (cash)  into  another  (gold),  with  the  potential  for appreciation in value over time.

(c) and (d): No specific study has been conducted by the Government or the Reserve Bank of India (RBI) in this regard.

(e): The RBI has taken several measures to improve formal credit availability against gold, particularly  for  small  borrowers  requiring  small  value  loans,  such  as  raising  the  maximum Loan-to-Value (LTV) ratio for consumption loans against gold collateral to 85% for loans up to ₹2.5 lakh, and 80% for loans between ₹2.5 lakh and ₹5 lakh, while the previous limit of 75% remains for loans above ₹5 lakh. The earlier cap of ₹4 lakhs on bullet repayment loans (where both principal and interest are due for payment only at the maturity of the loan), applicable to Cooperative  Banks  and  Regional  Rural  Banks,  has  been  removed.  Further,  to  discourage informal lending practices, RBI has imposed restrictions on extending gold loans in case of ambiguity  in  the  collateral's  ownership  and  the  practice  of  lenders  repledging  gold/  silver collateral. Additionally, lenders may renew loans upon a formal borrower request, subject to credit assessment, permissible LTV limits, and the loan being classified as 'standard', with bullet repayment loans eligible for renewal upon settlement of accrued interest. Reflecting the combined impact of regulatory efforts and shifting borrower preferences to gold loans due to the  relatively  higher  LTV  ratio  vis-à-vis  other  types  of  collateral,  the  value  of  bank  loans against gold jewellery increased from ₹1,16,777 crore in May 2024 to ₹2,51,369 crore in May 2025 as per the data published by the RBI.

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