New Delhi, Oct. 25 -- Indians buy gold on Akshaya Tritiya, Dhanteras and Diwali, and depict Goddess Lakshmi showering gold as coins. They also gift gold to newborns and brides, and part with it only as a last resort. Families and temples now keep about 25,000 tonnes of it, which is roughly 28 times what the Reserve Bank of India (RBI) holds in its reserves. Ironically, almost none of it can buy even a cup of tea until sold for rupees.

In May this year, as an oil shock from the Persian-American conflict battered the rupee, Prime Minister Narendra Modi asked Indians to postpone buying gold for a year so that imports could be curtailed and pressure on the rupee lifted. The government also raised the import duty on gold from 6% to 15%. But I...