Executive Summary:
This document addresses Lok Sabha Unstarred Question No. 1172 regarding the impact of gold prices on core retail inflation, particularly concerning household budgets and informal lending. The response, provided on July 28, 2025, by the Minister of State in the Ministry of Finance, assesses gold's contribution to inflation, its effects on different populations, and measures taken to regulate gold loans. It references data from July 2024 to May 2025.
Key Points / Main Content:
* **Gold's Impact on Inflation:**
* Gold contributed about 20% to core inflation (CPI excluding food, beverages, and fuel) from July 2024 to June 2025.
* Increased gold prices positively influence household consumption through the wealth effect.
* High gold prices may differentially affect populations with greater sociocultural and economic reliance on gold.
* **Government and RBI Studies:**
* No specific 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.
* **RBI Measures on Gold Loans:**
* The RBI has increased the maximum Loan-to-Value (LTV) ratio for consumption loans against gold collateral:
* 85% for loans up to ₹2.5 lakh.
* 80% for loans between ₹2.5 lakh and ₹5 lakh.
* 75% remains for loans above ₹5 lakh.
* The ₹4 lakh cap on bullet repayment loans for Cooperative Banks and Regional Rural Banks has been removed.
* Restrictions have been imposed on extending gold loans with ambiguous collateral ownership and the practice of lenders re-pledging gold/silver collateral.
* Lenders may renew loans upon borrower request, subject to credit assessment, permissible LTV limits, and loan classification.
* **Increase in Formal Gold Loans:**
* The value of bank loans against gold jewelry increased from ₹1,16,777 crore in May 2024 to ₹2,51,369 crore in May 2025.
Impact Analysis:
* **Households:**
* Impact: Benefit from the wealth effect due to increased gold prices, but those heavily reliant on gold for social occasions may face disproportionate budget impacts.
* Action Required: Consider the dual role of gold as both consumption and investment when making financial decisions.
* **Small Borrowers:**
* Impact: Improved access to formal credit against gold due to increased LTV ratios for smaller loans.
* Action Required: Utilize formal credit channels for gold loans to avoid informal lending practices.
* **Cooperative Banks and Regional Rural Banks:**
* Impact: Increased flexibility in offering bullet repayment loans due to the removal of the ₹4 lakh cap.
* Action Required: Adjust lending practices to reflect the removal of the bullet repayment loan cap, ensuring compliance with credit assessment and LTV limits.
* **Lenders (Banks and Financial Institutions):**
* Impact: Need to adhere to revised LTV ratios and restrictions on gold loan practices.
* Action Required: Implement updated LTV ratios, ensure collateral ownership clarity, and avoid re-pledging collateral.
* **RBI:**
* Impact: Monitor the effectiveness of measures taken to improve formal credit availability against gold.
* Action Required: Continue monitoring the gold loan market and make necessary adjustments to regulations as needed.
Key Entities Referenced
Credit Rating Information Services of India Limited: A credit rating agency, referred to in the context of a report on the impact of gold prices on core retail inflation.
Reserve Bank of India: The central bank of India, involved in studies and measures related to gold loans and financial regulations.
Consumer Price Index: An index used to measure the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
Tamil Nadu: A state in India, specifically mentioned in the context of the impact of gold inflation on rural women.
Ministry of Finance: The ministry responsible for financial matters in the Government of India.
Shri S Jagathratchakan: A member of Lok Sabha who raised a question about the impact of gold prices on core retail inflation.
Shri Pankaj Chaudhary: The Minister of State in the Ministry of Finance who provided the answer to the question.
Regional Rural Banks: Financial institutions in India that are mentioned in the context of bullet repayment loans.
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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