Modi Urges Indians to Cut Gold Purchases Amid Economic Strain

Prime Minister Narendra Modi has made a public appeal for Indians to postpone their gold purchases for approximately one year, a move aimed at conserving the nation's foreign exchange reserves and bolstering the weakening rupee. This advisory comes amidst escalating geopolitical tensions in West Asia, which have led to a surge in crude oil prices, significantly increasing India's import bill and putting considerable pressure on the country's balance of payments. India, heavily reliant on imports for both crude oil and gold, faces a dual challenge in managing its external accounts. The appeal, made at a public meeting in Hyderabad, is part of a broader call for national austerity measures, including reducing fuel consumption and limiting non-essential foreign travel. Modi emphasized that making small changes for a year could lead to substantial foreign exchange savings. This initiative is particularly significant given India's status as the world's second-largest gold consumer, with demand largely driven by cultural traditions, weddings, festivals, and investment. Historically, gold purchases have been viewed as a safe haven and a hedge against inflation and currency depreciation, making them deeply ingrained in Indian household financial planning [13, 19, 27, 28, 30, 31]. Economically, gold imports contribute significantly to India's trade deficit and current account deficit (CAD). In the fiscal year 2025-26, India's gold imports reached an all-time high of approximately $71.98 billion, a substantial increase from previous years [3, 25]. This surge, driven partly by soaring global gold prices, has put immense pressure on foreign exchange reserves, as the country must spend dollars to finance these imports [4, 10, 20]. The weakening rupee, which has become one of Asia's worst-performing currencies, further complicates the situation, making imports more expensive and potentially fueling inflation [8, 26, 29, 35]. In tandem with the Prime Minister's appeal, the Indian government has also taken policy measures to curb gold imports. Import duties on gold and silver have been more than doubled to 15% from 6% [8, 14, 25, 31, 35]. This move is intended to make imports costlier, thereby reducing demand and easing pressure on foreign exchange reserves. However, such increases in import duties have historically presented challenges, including concerns about potentially spurring smuggling and impacting the gems and jewellery industry, which is a significant employer [8, 14, 25, 31]. The World Gold Council notes a structural shift in India's gold market, with investment demand, including gold ETFs, bars, and coins, surpassing jewellery consumption for the first time in the March quarter of 2026 [2, 18]. This trend, fueled by rising domestic gold prices and relatively modest returns from equities, indicates that gold is increasingly being viewed as a defensive investment and a store of value against economic uncertainties and currency volatility [18, 27, 28, 31]. NITI Aayog Vice Chairman Dr. Ashok Lahiri has supported the austerity call, equating it with national savings that can finance domestic investment. He criticized India's high gold import dependency as a waste of money and advocated for market-determined exchange rates. While acknowledging potential impacts on the industry, he stressed the priority of conserving foreign exchange [32]. Despite the government's measures and the Prime Minister's appeal, historical data suggests that Indian consumers have a resilient demand for gold, often viewing it as a long-term asset and a hedge against inflation and uncertainty. The effectiveness of these measures in significantly reducing overall demand in the long run remains to be seen, as cultural factors and investment sentiment play a crucial role in the Indian gold market [28, 30, 31, 36, 42, 43]. The Reserve Bank of India has also been steadily increasing its own gold reserves, which some interpret as a validation of gold's long-term value [21]. The recent increase in import duties, from 6% to 15%, is a significant policy shift, reflecting the government's heightened concern over the country's economic vulnerabilities.

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