Satyendra Nayak explains how currency, bank deposits, and unlocking India’s $5 trillion gold reserve drive the cycle of production, consumption, and rapid economic growth
An Economy is a giant and intricately woven machine. We are all a part of it and use it to serve our purposes. Individuals, households, businesses, corporates and governments function in it and make it. The ultimate goal is consumption, saving, and investment for future consumption. Income is a primary source that can enable this. To achieve this, we need a common medium, that is, money.
Money is a vehicle through which an economy functions, moves, and grows. Money comes in two forms: currency, which is issued by a central bank, and bank deposits held with a banking system. Currency is physical, but bank deposits can be digital. It is this money stock and supply that permits the cycle of production, income, consumption, saving, and investment to accelerate constantly. Without money, the economy stands still. Money is the wheel of an economy.
Now the question arises, when everybody holds money, how and where does it go? There is a simple answer to this in economics. In economic theory, demand and supply always remain equal. If either demand or supply changes, the other also adjusts to make them equal. So it is with money. If there is more demand for money, the money supply will increase.
Let us go down to the two components of money. The supply of currency in circulation is what is in demand by the public. The difference between currency and bank deposits is that the latter consists of both savings and credit given by banks.
The value of what we produce and earn income annually is Rs 360 lakh crores. With a population of 146 crores, we get a monthly income of Rs 20,000 per person. Not all would be earning income or producing. But it is an average estimate of income per person. Against this, we have currency in circulation of Rs 40 lakh crores, amounting to Rs 28,000 per person. Total bank deposits of Rs 253 lakh crores give us an average bank deposit per person of Rs 1,73,000. Every individual holding cash and bank deposits of Rs 2,01,000 is producing Rs 2,40,000 of income annually. This ratio, which is 84% now was about 40% in 1960. It reflects economic growth over the last 85 years, with money as its vehicle. But money is only a medium, and the factors that generate growth are consumption, investment, and exports. Money creates income and income generates savings which add to money in the form of bank deposits. This is an ongoing process in the cycle of money, production, income, savings, and investment.
In India, another monetary asset that households keep is gold and gold jewellery. Over generations, households have accumulated gold and its jewellery and keep on adding to them every year. Household gold in India is estimated at 35,00 tons, valued at over $5 trillion as of late 2025, amounting to Rs 4,80,00,000 crs and 133% of our GDP. Per capita holding of Rs 3,30,000. This massive private hoard, often held in jewellery by women, exceeds India’s nominal GDP and represents roughly 11% of all gold ever mined. These holdings largely exceed official reserves of major nations. It shows how Gold is deeply entrenched in our cultural and religious environment as an asset, often used as a hedge against inflation and a primary form of liquidity and financial security, particularly in rural areas. Over 80% of households store gold in banks or private lockers, yet less than 2% is used as loan collateral. Indian households hold more gold than the central bank reserves of the USA (8,000 tons), Germany (3,300 tons), and the IMF combined.
When India’s per capita gold holdings, which are larger than currency and bank deposits, are added, we get per capita monetary assets of Rs 5,31,000. India’s monetary assets of currency, bank deposits Rs 300 lakh crs, 90% of its GDP, but with gold holdings of Rs 480 lakh crs added to it, will be Rs 780 lakh crs, 220% of its GDP. India’s gold holdings, being 130% of its GDP, are a crucial element of its monetary economy that gives it great liquidity, stability and security. This role of gold emanates from gold’s quality and features that make it both ornamental as well as liquid with a sure prospect of appreciation in value over time. No other liquid asset gives it such an advantage as gold does. It will continue to be so, as long as it is scarce in supply over its demand. Gold holdings do not earn interest compared to bank deposits, but the annual return on gold over last 25 years has been about 14% and above all other assets including equities.
Household consumption of 62% of GDP is Rs 225 lakh crs. It gives us annual per capita consumption of Rs 1,54,000, amounting to per capita monthly consumption of Rs 12,800. This amount is spent on your day to day or month to month items of consumption like food grains, vegetables and fruits, milk and milk products, other items of day to day consumption, travel (by car, bus, rail, air) electricity, petrol, gas, clothes and personal effects, medicines, restaurants and hotel stay. The consumption expenditure sustains the businesses and industries that are engaged in producing and providing these products and services to consumers. They reach the consumers through distributers, from stores, malls or direct by delivery, or through mobile or computer applications. Due to a massive increase in mobile phone use and applications, the sales through wireless media have increased manifold and will continue to do so in the future. Sales through mobile phones across the country in big metropolitan cities as well as small towns and villages will be the trend that will grow bigger. Shopping through store visits has reduced considerably due to online shopping. Customer visits are less now goods and products are directly delivered by the vendors. The savings sustain and grow the banking industry and capital market, which are crucial for investment in the economy. Growth in the economy is triggered by the volume of investment and its rate as a percentage of GDP. The higher the investment rate financed through savings, bank credit, and foreign investment, the higher will be the growth rate of the economy. India is now achieving a growth rate of 7.8%, which is the highest rate for the size of our economy, compared to 2% achieved by the US economy and 4% by China.
The writer is an economist, former banker and published author. Email: ss_nayak@hotmail.com