The Gold Control Act was legislation enacted in India in 1962. After the Indo-China War in 1962, due to loss of foreign exchange reserves, the government of India enacted the Gold Control Act., 1962, prohibiting the citizens from holding pure gold bars and coins. The old holdings in pure gold had to be compulsorily converted into jewellery and that had to be declared. Only licensed dealers were allowed to deal in pure gold bars and coins. New gold jewellery purchases were either recycled or smuggled gold. This legislation killed the official gold market and a large unofficial market sprung up dealing in cash only. The gold was smuggled in and sold through the unofficial channel wherein, many jewelers and bullian traders traded in smuggled gold. A huge black market developed for gold. Gold Smith were unorganised labour force and could not cope with the new developed situation.
In 1990, India had a major foreign exchange problems and was on verge of default on external liabilities. The Indian Govt. pledged 40 tons gold from their reserves with the Bank of England and saved the day. Subsequently, India embarked upon the path of economic liberalization. The era of licencing was gradually dissolved. The gold market also benefited because the government abolished the 1962 Gold Control Act in 1992 and liberalized the gold import into India on payment of a duty of Rs.250 per ten grams. The government thought it more prudent to allow free imports and earn the taxes rather than to lose it all to unofficial channel. From official imports of practically nothing in 1991, India officially imported more than 110 tonnes of gold in 1992, which now stands about 800 tonnes in a year.
In September 1999, the Govt. of India launched a Gold Deposit Scheme to utilize the idle gold and simultaneously give a return to gold owners and reduce the country's reliance on imports. However, this plan was not widely accepted by the population.