Thirty-five years ago, gold helped India pull back from the brink of a sovereign payments crisis, providing emergency foreign exchange at a moment when the country had only enough reserves to cover a few weeks of imports. The episode came shortly before Finance Minister Manmohan Singh announced the landmark economic reforms of 1991 that transformed India’s economic policy.
In July 1991, India was facing an acute shortage of foreign exchange. Rising oil prices after the Gulf War, political instability, weakening investor confidence and pressure on external financing had pushed the country into a precarious position. Nearly 67 tonnes of gold were mobilised through two emergency transactions, raising around $600 million and giving policymakers crucial time to stabilise the situation.
India’s 1991 economic crisis
The crisis had been building throughout the 1980s, when India increasingly relied on external borrowing to finance economic growth. Fiscal deficits widened, while the country remained heavily dependent on imported oil.
The situation deteriorated after Iraq invaded Kuwait in 1990. Crude oil prices rose sharply, while remittances from Indian workers in the Gulf came under pressure. Political uncertainty also weakened confidence, with India going through several fragile governments between late 1989 and mid-1991.
International lenders became increasingly reluctant to roll over short-term credit facilities, while non-resident Indians withdrew deposits. By June 1991, India’s foreign exchange reserves had fallen to a level capable of financing only a few weeks of imports.
The immediate challenge for policymakers was therefore not long-term economic reform but finding enough dollars to meet essential external obligations. Gold became the country’s emergency financial asset.
India’s first gold transaction in 1991
The first emergency operation took place in May 1991 under the Chandra Shekhar government. Twenty tonnes of government-owned confiscated gold were transferred through the State Bank of India in a transaction involving Union Bank of Switzerland.
The arrangement was structured as a sale with an agreement allowing India to repurchase the gold later. It generated approximately $200 million to $215 million in foreign exchange.
Although the amount provided some relief, it was not enough to resolve the crisis. Pressure on India’s reserves continued, leading policymakers to consider using the Reserve Bank of India’s own gold holdings as collateral.
RBI pledges 46.91 tonnes of gold
The RBI eventually pledged 46.91 tonnes of gold to obtain emergency foreign currency funding. The operation involved the Bank of England and the Bank of Japan and secured approximately $405 million in foreign currency loans.
Combined with the earlier Swiss transaction, the emergency gold operations raised roughly $600 million. At a time when India was struggling to secure every available dollar, the funds provided critical breathing space.
The symbolism was equally significant. India still possessed substantial gold reserves, but using them as collateral demonstrated the severity of the country’s financial position and the urgency of the external payments crisis.
How India moved the gold overseas
The RBI’s gold operation became one of the most closely guarded financial missions of the crisis. The lenders required the collateral to be physically held outside India, meaning the pledged gold had to be transported overseas.
Officials selected gold bars that met international bullion standards. The bars were weighed, verified, insured and repackaged before being moved under tight security.
Beginning in early July 1991, the gold was transported from RBI vaults in Mumbai to the airport with armed escorts. The 46.91 tonnes were flown overseas in multiple consignments, largely to the Bank of England’s vaults in London. Contemporary accounts indicate that the operation was completed in four separate consignments.
Secrecy was considered essential. An early disclosure could have intensified market panic, prompted banks to cut credit lines and encouraged importers to rush for scarce dollars. Lenders and rating agencies could also have interpreted the movement of gold as a sign that India was close to default.
The operation eventually became public, with reports and images of bullion being loaded onto aircraft becoming enduring symbols of the 1991 crisis. By then, however, the emergency funding had largely been secured and the immediate danger had eased.
Gold bought time for India’s 1991 reforms
The gold transactions did not resolve the structural weaknesses in India’s economy. They provided something equally important at that moment: time.
Within weeks, the newly elected government of Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh introduced sweeping economic reforms. The rupee was devalued, industrial licensing was dismantled, trade barriers were reduced and rules governing foreign investment were liberalised.
The emergency funds secured against gold helped policymakers create breathing room to undertake these measures without the immediate threat of an external payments collapse dominating every decision.
India subsequently repaid the loans and recovered the pledged gold, meaning the country did not permanently lose the reserves used during the crisis.
From pledging gold to building larger reserves
India’s position is dramatically different 35 years later. The RBI now holds 880.52 tonnes of gold, more than twice the level around the 1991 crisis.
The central bank has also clarified in recent months that its physical gold stock remains unchanged at 880.52 tonnes despite speculation surrounding possible gold sales.
Gold has become a larger component of India’s foreign exchange reserves as well. According to RBI data cited in the supplied material, gold accounted for 13.92% of reserves in September 2025, rising to 16.70% in March 2026 and 16.85% in May 2026.
The value of the RBI’s gold holdings has also increased significantly as international bullion prices have risen. The value of gold held as an asset of the RBI’s Banking Department increased by more than 63% during 2025-26.
RBI brings more gold back to India
Gold’s role in India’s reserve strategy has also changed. Instead of using the metal to secure emergency funding, the RBI has accelerated the repatriation of gold held overseas.
By March 2026, around 680 tonnes of India’s gold reserves were held domestically, representing more than 77% of total holdings. About 198 tonnes remained with the Bank of England and the Bank for International Settlements.
The repatriation gained momentum after geopolitical developments, including the Russia-Ukraine conflict, increased concerns among central banks about keeping sovereign assets abroad. In the six months ending March 2026 alone, the RBI brought back more than 104 tonnes of gold.
Why gold remains important for India
Gold continues to serve a different purpose today. It acts as a diversification asset and a hedge against currency volatility and geopolitical uncertainty rather than simply an emergency source of foreign exchange.
India’s overall foreign exchange reserves stood at about $676 billion in July 2026, while gold remains an important component of that reserve portfolio.
The contrast between 1991 and today is striking. During the crisis, gold represented an asset of last resort that helped India obtain urgently needed foreign currency. Today, the same asset forms part of a much stronger reserve position.
The broader lesson from the 1991 episode is therefore about confidence as much as gold. When confidence in India’s ability to meet external obligations was collapsing, gold provided an asset that could be trusted and converted into emergency liquidity. Three and a half decades later, the metal is held in much larger quantities as part of the country’s financial resilience rather than as a desperate measure to prevent default.
Source: The Economic Times, with RBI data and historical details as provided in the supplied material.
