Independence Day 2026: A 1968 gold ban that turned every Indian household into an underground vault

In the late 1960s, a quiet shift took place inside homes across India. Floorboards were lifted, false panels were built into wardrobes, and brass containers filled with family jewelry were stashed in hidden corners of bedrooms and backyards.

Families weren't hiding their heirlooms from thieves. They were reacting to a new law from New Delhi

In September 1968, Parliament passed the Gold (Control) Act.


The policy aimed to curb gold imports, conserve foreign exchange, and encourage citizens to keep their savings in banks rather than in physical gold. To enforce this, the government restricted the possession of gold bullion and mandated that all new jewelry be made at a maximum purity of 14 karats, well below the traditional 22 karats.

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Instead of reducing demand, the regulation pushed the gold market underground. Overnight, millions of ordinary households found themselves holding contraband, effectively turning thousands of homes into informal mini-vaults.

When Gold became contraband
The roots of the policy drive began earlier under Morarji Desai, who served as Finance Minister and later Deputy Prime Minister. India was suffering from severe foreign exchange deficits following the 1962 border war with China and subsequent economic distress. Seeing precious foreign exchange reserves draining away to buy imported gold bullion, the government sought to break the nation’s ancient bond with the yellow metal.


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As per a report by The Economic Times, the policy logic on paper was straightforward:

• Prohibit citizens from owning gold in bars and coin form.
• Restrict goldsmiths and licensed jewellers to tight holding limits (as low as 100g for artisans).
• Force jewellers to craft items only in 14-karat gold (down from the customary 22K or 24K).
• Redirect private wealth into public banks to fuel national development.

In reality, the law did not quite land as expected. To an Indian family, gold was not merely an asset; it was stridhan (a woman's financial security), a sacred ritual asset, and an emergency hedge against inflation.

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The resistance

The public response was an immediate and overwhelming rejection. Indian buyers flatly refused to purchase 14-karat gold, viewing the diluted alloy as a bad financial store of value.

The economic fallout was severe for traditional artisans. Members belonging to the traditional Sunar (goldsmith) communities lost their livelihoods overnight because they lacked government licenses or customers willing to buy legal 14K items. Protests erupted across the country as ancestral shops shuttered. According to archives in Business Standard, because legal channels were strangled, an illegal parallel economy filled the void.

Underworld cartels operating out of Bombay built vast networks smuggling pure 10-tola gold bars from the Middle East via speedboats across the Arabian Sea. Gold was hidden inside ship engine blocks, car chassis, and diplomatic baggage, commanding a massive 40% to 80% price premium over London bullion prices

The 1990 repeal

By 1990, after 22 years of enforcement, the government conceded that the law had achieved the exact opposite of its goals. It had wiped out traditional craftsmanship, created a sprawling black-market hawala economy, and failed to stem the loss of foreign exchange reserves.

On June 6, 1990, under Finance Minister Madhu Dandavate, the Gold (Control) Repeal Act was officially passed. The government recognized that it was far more sensible to allow legal imports, lower duties, and earn tax revenue than to push the entire trade into the hands of criminal syndicates.

The 1968 ban was not the only time gold altered India's national destiny.

1991 emergency gold airlift

Just one year after the repeal, India faced a catastrophic Balance of Payments crisis with foreign exchange reserves barely enough to cover three weeks of imports.

An RBI operation quickly became one of the most covert financial missions in India's history. The lenders insisted that the collateral had to be physically held outside India. This meant the gold could not simply remain in RBI vaults while being pledged and it had to be moved abroad. Officials first had to identify bars that met international bullion standards. The gold was weighed, verified, insured and repackaged. Special logistical arrangements were made to avoid publicity.

Beginning in early July 1991, the gold was transported under heavy security from RBI vaults in Mumbai to the airport. Armed escorts accompanied the consignments. The shipments were flown overseas in multiple tranches, largely to the Bank of England's vaults in London. The operation involved 46.91 tonnes of gold. Contemporary accounts indicate that the transfer was carried out in four separate consignments.

The secrecy was not merely about security. If markets had learned beforehand that India was sending gold abroad to secure emergency funding, it could have triggered panic. Foreign banks might have cut credit lines. Importers could have rushed to buy dollars. Rating agencies and lenders might have interpreted the move as evidence that default was imminent.

Officials therefore sought to complete the operation before details became widely known. However, the secrecy did not last long. News reports eventually revealed that gold was being flown out of the country. Images of bullion being loaded onto aircraft became enduring symbols of the crisis. But by then, the money had largely been secured and the immediate danger had eased.

Gold bought time for 1991 economic reforms

The gold transactions did not solve India's structural problems but bought precious time. Within weeks, the newly elected Narasimha Rao government and Finance Minister Manmohan Singh launched sweeping reforms. The rupee was devalued. Industrial licensing was dismantled. Trade barriers were reduced and foreign investment rules were liberalised.

The emergency funding raised against gold gave policymakers breathing space to undertake those measures without the immediate threat of a payments collapse hanging over them. Importantly, India later repaid the loans and recovered the pledged gold. The country did not permanently lose its reserves.

From pledging gold to accumulating it

Thirty-five years later, the contrast could hardly be sharper. The RBI today holds 880.52 tonnes of gold, more than double the level that existed around the time of the 1991 crisis. The central bank has repeatedly clarified in recent months that its physical gold stock remains unchanged at 880.52 tonnes despite speculation about gold sales.

Gold has also become a larger component of India's external reserves. According to RBI data, gold's share in the country's foreign exchange reserves rose from 13.92 per cent in September 2025 to 16.70 per cent by March 2026 and further to 16.85 per cent in May 2026. The value of the RBI's gold holdings has surged because of rising global bullion prices. The value of gold held as an asset of the RBI's Banking Department jumped more than 63 per cent during 2025-26.