How I can hedge my bullion exposure in India? Should I sell or buy rupee against USD for that purpose? I don’t want to lose money when USD depreciates against INR. Is this a good idea to do that?
In general, hedging against the dollar's depreciation vs. the rupee means that you want something that will provide you with compensation should that take place.
So, you're worried about USD's moving down, so you should short USD because in this case you will gain from this move lower. We are talking about a move in terms of rupee, so the other leg needs to be in terms of this currency. So, you will go long rupee.
Therefore, for contracts quoted as USD:INR, you will need to short them in order to hedge your position. In other words, you "sell USD in rupees."
Here's how it would work: if the price of gold doesn't change but USD moves lower against rupee, the value of your gold assets in terms of rupee will decline (an ounce of gold will still be worth, say, $1,750 USD but $1,750 will be worth less in terms of rupee). However when you sold USD in rupee / shorted a USD:INR contract, you gained from dollar’s move lower from this contract. If the value of the contract corresponded to the value of your gold holdings, your overall position would be almost unaffected by dollar's move lower.
Whether this arrangement is a good idea or not is a different matter. From the long-term point of view, gold is likely to rally in terms of all currencies, so you might want to buy more gold rather than spend money on fees associated with hedging. However, if you want to speculate on short-term moves and you analyze gold from the USD perspective, then yes, hedging in order to trade gold from the USD perspective (the one that you analyze it in) appears to be a good idea.
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