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Gold Exports in India


In this article we will discuss about the meaning and causes of gold exports in India.

Meaning of Gold Exports:

Under the Mughals, India imported gold and Silver on a large scale. This was due to the favourable balance of her trade in those days. The demand for Indian manufactures was keen in the World markets while her demand for the manufactures of other countries was almost negligible.

Indian produce was ex­ported in Indian ships manned by Indian sailors and Indians largely earned the profits from exchange and provision of credit needed for trade.


Therefore, not only the balance of trade but also the balance of payments was heavily in India’s favour. In short, India was a creditor country and the world paid her tribute in silver and gold. H.L. Dey estimates that between 1493-1931, India made a net import of gold of 157.7 million ounces valued at Rs. 900 crores. Brij Narain, however, estimates that between 1901-1931, the net import of gold amounted to Rs. 548 crores.

These gold imports came to a sudden end when England abandoned the Gold standard and India linked the rupee to sterling. Not only did the imports end but exports of gold began on a large scale and continued over a number of years.

It is estimated that during the eight years, 1931-32 to 1939-40, gold exports from India amounted to 41.78 million ounces valued at Rs. 362.35 crores. These exports were so heavy that in six years alone, 1931-37, India exported “between 1/4 to 1/5 of the entire stock of gold which she had patiently accumulated through a period of 438 years.”

This movement of gold from India was entirely unexpected. There was no sudden or dramatic change in the banking or investment habits of the people. And yet, India suspended not only her purchases but was selling gold to the world at large on an unprecedented scale.


To the outside world, it might have been a source of some satisfaction that the traditional ‘sink of gold’ had surrendered a substantial part of her hoards. But, within the country, the phenomenon became the subject of a great controversy.

On the one hand, the government emphati­cally asserted that the free and unrestricted outflow of gold was in the best interests of India. On the other hand, the public viewed these exports with great concern and strongly urged upon the government the desirability of placing and immediate ban on them.

Causes of Gold Exports:

Regarding the causes of gold exports, there is a difference of opinion. One school of thought, led by B.R. Shenoy, attributed the export of gold to the rupee-sterling link and to “the under valuation of the rupee in terms of sterling.” This line of interpretation is partly right from the narrow technical point of view and would also seem to be supported by the figures of purchasing-power parities.

But such a view of the matter is defective in several respects. In the first place, measurements of ‘Purchasing Power Parity’ “afford only very rough criteria of over and under-valuation.” In the second place, if under-valuation were the main cause of gold exports, these would have increased year by year instead of decreasing as they actually did.


The real cause of gold exports lay in the acute economic distress among the peasants and Zamindars caused by the collapse of agricultural prices. As com­pared to January 1929, the decline of agricultural prices in India, measured in gold, was 56.4% in March, 1933. It is this disastrous fall in agricultural prices which forced the agriculturists to draw upon, on a large scale, their savings in the form of gold.

However, due to ignorance of the villagers about the world prices of gold, pressure of intensive propaganda on the part of bullion dealers, and distress sales—sales made necessary by distress in order to meet current expenses —the internal price of gold at which bullion dealers bought it was lower as compared with the world price. As a result, the export of gold became highly profitable for the bullion dealers.

Later, however, as economic conditions gradually improved due lo rise in prices and increase of exports, the distress was mitigated and gold exports began to diminish even though depreciation of the rupee in terms of sterling or gold remained high.

That widespread distress, caused by the Depression and the heavy fall of agricultural prices, was compelling people to sell gold in rural India much before England went off the Gold Standard is borne out by M.L. Darling who found that “nearly all the gold that came upon the market from the village —was distress gold.”

Moreover, gold and land are the two forms in which wealth is stored in rural India and they are sold only in extreme distress and not on account of profit motive although profit motive encouraged the bullion dealers to collect and export this gold on a large-scale.

Gold exports became a matter of acute controversy in the country. There was a good deal of agitation in favour of either complete prohibition of gold exports or at-least the imposition of an export duty. The government, on the other hand, adopted a posture of complete Laissez-Faire and made no attempt to check the outflow of gold.

Government’s Case:

On behalf of the government , it was argued that India had hoarded gold worth hundreds of crores of rupees and that the amount exported was only a fraction there of; that it was unfair to interfere with the liberty of the sellers in disposing of their gold abroad to tide over the crisis; that there was nothing wrong in-drawing upon accumulated reserves in times of difficulties; that the future of gold was uncertain and that it was, therefore, best that India disposed it of; that, at-least, a part of the proceeds of gold had been invested.

In the words of Dadachandiji “the sale of gold resulted in growing rupee funds which induced the formation of several —electrical, sugar, chemical, match and cigarette com­panies which bore testimony to the productive use to which gold was put in India.”


The strongest argument of the government was that the exports of gold had improved India’s credit in the world market; that they had enabled remittances on account of “Home Charges”, to be made without borrowing; that they had enabled the repayment of sterling debts of the value of £ 15 million and finally, that gold exports had strengthened the currency reserves of the government.

That countries like Belgium, France, Holland and the U.S.A. had placed no restrictions on the export of gold was also cited as an additional argument in favour of a similar action in India.

Prof. Adarkar further strengthened the government’s case by pointing out the enormous gain made by the sellers of gold by buying it cheap and selling it when it had risen in value. Besides, the sale of gold also strengthened the rupee-sterling exchange in particular and sterling in general.

Defence Examined:


Non-official opinion, regarding gold exports with strong dis-favour, severely criticised the policy of the government both in the press and in the Assembly. Gold exports were condemned as “wastage of India’s resources, the wreckage of indigenous banking and a drain on the accumulated savings of generations.”

It was alleged that the unrestricted export of gold was likely to make it impossible for the country ever to reach the goal of Gold Standard. It was also pointed out that gold exports only concealed the over-valuation of the rupee at 1s.6d. Some feared that gold exported would be lost for ever for India would never be able to buy it back.

The loss of gold was all the more lamented because every other country was not only sitting tight on its gold but was also trying to add to its stock. Finally, it was contended that gold exported was distress gold and that the people were living on their capital. As L.C. Jain points out, such a process could not be allowed to continue indefinitely.

The argument that countries like Belgium, France, Holland, and the U.S.A. permitted unrestricted outflow of gold was fallacious because these countries were then on Gold Standard and, therefore, could not afford to impose the restric­tions which India could and should have.


Prof. Adarkar’s contention that the sellers of gold made enormous profits was refused by Shenoy who held that the sale of gold involved the seller in a double loss.

First, he got fewer rupees than he should have. This loss was entirely due to the undervaluation of the rupee incidental to its being linked with sterling. Second, the rise in the price of gold from Rs. 21.23 per tola to Rs. 30 per tola escaped the hands of those who sold gold during the period of its appreciation.

The reasoning that the export of gold meant that the Indian “people were using their reserves as they are meant to be” implies that the gold sold was really distress gold and that people sold it to tide over ‘terribly difficult times’. If that was so, the gold sale represented a process of living on capital —a dangerous process for a country and an individual alike.

In such difficult limes, the first duly of the government was to reduce tax burdens and increase the purchasing power of the people so that they were not forced to live on capital. But nothing of the kind was attempted.

As regards government’s argument that gold exports encouraged the flow of international trade, the critics replied that no other country ever adopted a policy designed to benefit others at one’s own cost. Perhaps, by so doing, the Indian government tried to accumulate ‘Reserves of credit’ in heaven.

Public criticism of gold exports was also based on the fact that these had set at naught the gold and sterling Regulation Ordinance of 1931 which was intended to prevent the export of capital by Indians.


Government’s claim that some of the gold proceeds were converted into interest-bearing government obligations is true. To that extent, the sale of gold represented the conversion of hoards, a useless form of reserve, into government paper, a useful form of reserve

However, a major portion of the gold sold, being distress gold, represented “the forced sale of capital resources to provide for ordinary every day necessities of life.” And this distress gold was certainly not converted into government paper.

A serious objection was that until 1930-31, India’s favourable trade balance was made up of large exports of goods; since 1931- 32, their place was filled by gold exports so as to give India a favourable trade balance.

This was an impossible situation and it could not have lasted long. After all, gold holdings were not unlimited in the country. That is why the public demanded a total ban on gold exports or at least the imposition of an export duty. Some like Sir Visvesvaraya suggested that the government should itself purchase the gold at a price based on the London — New York cross — rates.

The buying up of gold would have strengthened the government’s gold reserves and also helped in a controlled currency expansion. Besides, it would have involved no risk of loss. The U.S.A. for instance, imposed an embargo on the export of gold and the government bought all the gold available.

The buying up of gold by the government caused currency expansion and depreciation of the Dollar. India could also have adopted a similar course. But such a policy would have provided no relief to sterling.


With the support of the rupee removed, the Pound would have sunk lower than $ 3.15 which it reached in November, 1932. Therefore, “to ask for the abandonment of the Rupee-Sterling link or for an embargo on gold exports was asking for too much. It was to pitch our ambitions too high.”

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