A SMALL room on the eighth floor of Mumbai’s former cotton exchange is where jewellery goes to die. At the Master Bullion Assaying & Hallmarking Lab in the heart of the gold district, superheated crucibles melt elaborate bangles and earrings into bars a central banker might recognise. This alchemy is being promoted by the government under a new “monetisation” scheme designed to reduce India’s imports of gold: the melted bling can be traded for a bond which will return the same amount of gold several years down the line, with interest of up to 2.5% in the interim.

Gold is the bane of India’s exchequer. Indians vie with Chinese as the world’s biggest consumers, buying just under 1,000 tonnes a year and stashing it in anklets, safe-deposit boxes and Hindu temples. As all but a few bangles’ worth is imported, only oil accounts for a bigger share of India’s trade deficit. To put it another way, the imports cost India more dollars every year than it attracts from foreign institutions investing in stocks and bonds, points out Ajit Ranade, an economist.

Although Indians have traditionally used gold as part of a bride’s dowry and as an offering at temples, demand has ballooned in recent years. In 1982 they consumed just 65 tonnes of the stuff. Decades of inflation and a much-debased rupee have pushed savers towards what is, in effect, a convenient way to insulate their nest-egg from the poor decisions of India’s policymakers (and, just as often, from its tax inspectors). In rupee terms, in other words, gold has been a stellar investment.

Getting Indians to forgo gold for weddings and religious offerings is probably a non-starter. Easier to target the portion that is bought as an investment, especially in rural areas where banks are scarce and mistrusted. The government hopes it will gather 50 tonnes of gold through its bond scheme—a modest target given the country’s 20,000-tonne pile. Yet four months in only three tonnes have been gathered.

That is hardly a surprise: government schemes to collect gold have disappointed since at least 1962, when Indira Gandhi, then the prime minister’s daughter, handed over her own finery to finance a border skirmish with China. Though gold and a government bond backed by gold are much the same on paper, they do not hold the same appeal for those who favour gold as a store of value. Indians who are comfortable with paperwork and banks simply aren’t big holders of gold, points out Gurbachan Singh, an economist at the Indian Statistical Institute. By the same token, most Hindu temples, many of which have hoards of gold donated by the pious, have steered clear of the scheme, despite pressure from the government.

Policymakers have other ways of making gold less appealing. A modest excise tax in the recently unveiled budget has kept jewellers across the country on strike for a month. Gold sellers were already furious at import duties and rules forcing them to identify customers buying more than 200,000 rupees’ ($3,000) worth. In addition, the central bank is discouraging lending to buy gold.

Several trends suggest gold may eventually lose its lustre. Inflation has fallen dramatically, reducing its value as a hedge. A government scheme is giving hundreds of millions of people bank accounts for the first time, providing them with an alternative way to save. Young people are said to be less interested in wearing gold jewellery than their parents.

If the government really wanted to accelerate this shift, it could change its own ways. Various laws steer a big share of bank deposits into low-yielding government debt and agricultural loans. That, in turn, means that Indians earn little interest on their savings, enhancing gold’s relative appeal. Such financial repression helps the government fund itself cheaply. But it means that Indians are sitting on gold equivalent in value to four months of economic output. That could be financing productive investments instead.