The mythical El Dorado and India’s Growth Paradox

Once likened to ‘El Dorado’ by travellers, India today presents a striking paradox — an economy seen as resource-constrained despite sitting on vast, underutilised wealth. This raises a fundamental question: is India really poor, or simply unable to mobilise its own wealth effectively?

In medieval times, while there were frantic searches for ‘El Dorado’ going on, in Latin America, foreign travellers like Tavernier were addressing India as ‘El Darado’. India is perhaps the only major economy globally that is branded as poor while sitting pretty on trillions of dollars of underutilised assets and wealth. With a ranking as the world’s sixth-largest economy, India has a nominal GDP of $4.15 trillion for 2025 as per the IMF. The moot question is whether India suffers from absolute scarcity or from how its wealth is deployed, perceived and structured.

The problem is not savings, but where they sit.

There is a persistent, nagging myth that India is a poor country struggling to find its footing. It is a narrative of scarcity that dominates our economic discourse, leading us to believe that we are perpetually short of resources, funding and capital. The reality is quite different. India is not poor; it is capital-rich.

India holds trillions in household wealth that does not reach credit markets. Idle assets raise the cost of capital. When savings stay in gold, firms pay 150 to 250 basis points more to borrow. Instead of building factories, funding the next wave of startups or expanding businesses to scale, this wealth sits silent and stagnant in velvet-lined boxes and bank lockers across the country. India is not short of money, but of usable money.

Banks lend what they collect. When savings sit in gold and property, deposits remain low, making loans expensive. A business that works at 9% fails at 11%. That gap decides whether a factory is built, whether a shop expands, and whether jobs are created. Growth slows not because ideas are missing but because money is priced too high.

Financial savings are only 11-12% of GDP. China kept this above 20% for years and built faster. The gap shows up as weaker investment and slower scale. This creates a vicious cycle. People save in gold. Banks don’t get deposits. Loans become costly. Businesses hold back. Jobs don’t grow. The system then misreads this as weak demand and tries to fix the wrong problem. The constraint is not demand but the cost of capital.

This is where the distortion begins. The economy is not failing to generate savings, but to channel them.

Why Gold Keeps Winning and The Domino That Actually Matters

Gold is not a mistake. It protects families. Medical shocks still push households into distress spending and insurance payouts are not always reliable. Gold is easy to trust and easy to sell. It carries no counterparty risk. But here also, a common person is always a loser as there are so many haircuts like 20-25% making charges, jewellers’ cuts sometimes 30-40 % etc.

Moreover, it creates a system cost. Gold in a locker does nothing for the economy. It cannot fund a loan unless it is inside the system. That requires testing, paperwork and trust in institutions. Most people avoid it as status quoism is easier. The result is a quiet freeze. Wealth exists, but it does not move.

When savings sit in lockers, banks don’t get deposits. With fewer deposits, they lend less and charge more. Those extra 150-250 basis points are enough to kill marginal projects. A factory that works at 9% does not work at 11%. Expansion is delayed, hiring slows, and growth underperforms. Nothing here is abstract. The cost shows up in cancelled investments, not in headlines.

Over time, this compounds. Fewer projects today mean fewer jobs tomorrow and weaker demand later. The economy slows not in a sudden shock, but through a steady loss of momentum.

The External Bill Makes It Visible

India imports 700-900 tonnes of gold in strong years. That costs $40-50 billion and widens the current account deficit by up to 1-1.5% of GDP. With domestic gold sitting idle, demand growing, imports rise to fill the gap. The deficit widens. Financial conditions tighten. Borrowing costs stay high. What begins as a household choice ends as a national constraint. The invisible price is the investment that never happens.

Policy Asked for Change, But Didn’t Pay for It

Government schemes tried to move households away from physical gold. Few shifted. The reason is not culture but incentives.

The process to convert gold is slow. Tax treatment creates uncertainty. Returns often fail to beat the cost of holding gold. The alternative-keeping gold at home-has no friction. No forms, no delays, no risk. People choose what is easier. Policy asked for a change without making it worth the switch.

As long as the easier option remains outside the system, savings will stay outside the system.

Fix the Incentives-or Keep Paying the Price

Making this shift will cost money. To pull even 10% of gold-about 3,000 tonnes-into the system, the government will have to remove tax on conversion and offer returns that beat the cost of holding gold. The bill could reach 0.5-0.8% of GDP. That cost is visible and politically difficult. The alternative is less visible but larger over time. India will keep importing $40-50 billion of gold each year, keeping pressure on the current account. Interest rates will stay 150-250 basis points higher than they should. Firms will keep dropping projects that only work at lower borrowing costs.

The fix is not abstract. It sits at the jewellery counter and the bank branch. Let trusted jewellers test gold on the spot and credit value the same day into bank accounts. Remove tax risk so households are not penalised for switching. Pay a return that makes the shift worth it. Miss any one of these, and nothing moves because doing nothing is easier.

Until that changes, the outcome is the same. Households will keep their gold. Banks will keep charging more. An economy with $5 trillion in savings will keep behaving as if it does not have enough money.

Let this ‘Sone ki Chidiya’ unshackle and fly high; even the sky is not the limit for this bird.

Tax treatment creates uncertainty. Returns often fail to beat the cost of holding gold. The alternative-keeping gold at home-has no friction. No forms, no delays, no risk. People choose what is easier

An alumnus of NESA, Washington DC, Dr. Amitabh Ranjan isassociated with Indian Institute of Public Administration (IIPA),New Delhi as Registrar; Views presented are personal.