It was a subdued Diwali this year. Gold trading on Dhanteras was down by 50%. Traders blamed it on mostly on the lack of gold supply which was 83% lower than last year. But policy makers cheered. Their draconian policy of restricting gold imports was working. India’s trade deficit had declined and the rupee had calmed. But it is a temporary victory. Gold smuggling is on the rise and will eventually triumph, undermining a great victory of the 1991 reforms, which was to kill the havala market. There is breathing room, however, as gold forecasters expect world prices to fall. Western and Chinese investors are losing interest in gold as their economies pick up, which should also dampen Indian investor interest.

India absorbs about a quarter of the world’s gold, and the finance minister is quite right in wanting to limit its import. A recurring theme of world history is the constant loss of Western gold and silver to India. Two thousand years ago Roman senators grumbled that their women used too many Indian spices, silks and fine cottons, and India was draining the Roman empire of bullion. Pliny the Elder called India the ‘sink of the world’s precious metal’ when he heard that a Roman ship touched an Indian port daily.

The Portuguese similarly complained in the 16th century that their hard won gold and silver from South America was being lost to India. The British Parliament echoed this refrain in the 17th century. But India kept sucking Western bullion because Western consumers hankered after Indian luxuries and Indians were not interested in Western goods. As books had to be balanced, they were balanced with bullion. Only Britain’s Industrial Revolution reversed the flow in the 19th century when Indians finally found something they wanted from the West—cheap, durable cottons from the mills of Lancashire — as handlooms worldwide gave way to machine-made cloth.

Soon after Independence, India’s leaders forgot their grand trading heritage and closed our economy in the mistaken belief that trade had impoverished India. Touting the false mantra of ‘self-reliance’, they adopted an import-substituting path, and India lost out in the great trading boom after World War II. India’s share of world trade declined from 2.2% in 1947 to 0.5% in 1990. It was only after 1991 that India regained its historic pre-eminence in the world economy.

Given the one-way flow of gold over the centuries, a staggering amount has accumulated in India. The World Gold Council estimates it to be over 20,000 tonnes, worth $1.1 trillion or half of India’s GDP. For years economists have wanted to use this unproductive asset for productive investment. And happily, the process has begun. Gold loans, bonds, and deposit schemes are all steps in the right direction. In these schemes owners of gold earn interest by depositing it with banks, which in turn releases part of it in the market, thus reducing India’s demand for imported gold.

The bigger prize is to convince temples to do the right thing and deposit their vast gold stocks in banks and earn interest. Jamal Mecklai, the currency expert, had suggested earlier this year that if Tirupati temple were to deposit a third of its holdings at two per cent interest, it could earn Rs 3,000 crore a year. Tirupati did just that in May, beginning with a 2,250-kg deposit with the State Bank of India. This is a triumph! If major temples follow suit, gold will soon flood the domestic market, imports will stop, the global gold price will fall and the rupee will strengthen.

But this government is shy to go for an all out public campaign. It worries about people’s sentiments and of the opposition playing the religious card. Gold is, after all stridhana, ‘woman’s wealth’. Although a daughter now legally inherits her share of family property, families still insist on giving her inheritance at marriage as gold jewellery. But young Indians today are sensible and they will buy the idea that an inflation-proof gold linked certificate exchangeable for gold is the hip thing to receive at marriage rather than a bunch of clunky sets. So go for it, Reserve Bank. The road to India’s economic future may well be paved with gold.