By Charanjit Ahuja
Among the many appeals Prime Minister Narendra Modi made to the nation while making a case for adopting austerity in the national interest, one stood out: his request that Indians defer buying gold for at least a year.
Modi made the remarks while addressing a BJP rally in Hyderabad on May 10. His focus on gold was not accidental. Gold is one of the single largest non-essential drains on India’s foreign exchange reserves.
Why gold? India is among the world’s largest consumers of gold, importing roughly 700 to 800 tonnes annually while producing barely one to two tonnes domestically. More than 90% of the country’s gold demand is therefore met through imports.
Unlike crude oil or industrial metals, gold does not directly contribute to industrial productivity at scale. It is primarily held as jewellery, savings, collateral, and cultural wealth — all legitimate functions deeply embedded in Indian society — but from a balance-of-payments perspective, it represents a major dollar outflow with little immediate economic return.
Gold Import Bill
Gold accounts for nearly 9% of India’s total import bill, second only to crude oil among major import categories. At a time when elevated crude prices are already straining India’s external account, every additional dollar spent on gold imports worsens the pressure.
The gold market itself is already under stress. Imports have fallen sharply in recent months. From nearly 100 tonnes in January 2026, imports dropped to around 65 tonnes in February, then to roughly 20 tonnes in March. April estimates stand at just 15 tonnes — among the lowest monthly figures recorded in nearly three decades outside the Covid period.
The slowdown reflects both weak demand at elevated prices and disruptions in India’s import pipeline. The annual renewal of the approved list of banks authorised to import gold was reportedly delayed at the start of the financial year, slowing bullion shipments. Pending customs notifications and uncertainty around tax treatment added further friction.
Bullion Exchange?
As a result, the India International Bullion Exchange — now the primary import route — is reportedly handling only around 1.5 to 1.8 tonnes per week, a fraction of normal volumes.
Domestic gold prices are now trading at a premium of roughly $15 to $16 above international benchmark prices, according to Metals Focus senior consultant Harshal Barot. In practical terms, Indian consumers are paying above global market rates because of a supply squeeze that government-related administrative delays have partly contributed to.
For now, this means consumers are buying into a market that is already tighter and more expensive than usual. But the bigger concern lies ahead.
Festive Season
The festive and wedding season later this year could create a far more severe supply crunch. Metals Focus notes that the current slowdown remains manageable only because this is traditionally a weaker period for jewellery demand. If buying revives sharply before Diwali and the winter wedding season without a recovery in imports, shortages could intensify and premiums could rise further.
For families planning weddings, the market’s message is clear: do not assume prices will fall. Importantly, Modi’s appeal remains voluntary. There is no ban, restriction, or tax penalty on buying gold today.
Government sources have linked the austerity push to tensions in West Asia, warning that disruptions to oil supplies could sharply increase India’s import bill. But the timing of the announcement has raised political questions. The appeal came only after the 2026 assembly elections in West Bengal, Tamil Nadu, Kerala, Assam, and Puducherry concluded. During the campaigns, there was no public warning about an impending economic squeeze or the need for conservation.
Foreign Travel
Beyond gold, Modi urged citizens to postpone foreign travel, cut petrol and diesel consumption, use metro rail and electric vehicles, reduce edible oil use, rely less on chemical fertilisers, and favour Swadeshi products over imports.
To reinforce the urgency, he revived the language of Covid-era sacrifice, reminding Indians how they adapted to work-from-home arrangements, virtual meetings, and reduced mobility during the pandemic.
The immediate trigger is clearly the West Asia conflict. India imports nearly 85% of its crude oil requirements, making the economy highly vulnerable to global energy shocks. Rising oil prices directly inflate the import bill, while fertiliser costs are also climbing because natural gas — a key feedstock for nitrogen fertilisers — has been caught in the same geopolitical disruption.
When import costs surge on essentials like crude oil, governments look for relief elsewhere. Gold, edible oil, and overseas travel all represent large foreign exchange outflows that are discretionary or semi-discretionary in nature.
Edible Oils?
India is also heavily dependent on imported edible oils, sourcing large quantities of palm oil from Indonesia and Malaysia and sunflower oil from the Black Sea region — both vulnerable supply chains in times of geopolitical instability.
Foreign travel is another visible forex drain. Indians travelling abroad spend dollars, dirhams, euros, and pounds on hotels, tourism, shopping, and services, all of which contribute to outflows from India’s balance of payments. With outbound tourism growing rapidly in recent years, the government’s call to defer overseas travel is aimed at slowing that outflow during a period of external stress.
But the deeper economic vulnerabilities predate the current crisis. India’s dependence on imported crude has risen from 77.6% in 2014 to over 88.6% by 2026. Domestic production has steadily declined even as demand has surged. Strategic petroleum reserves remain only partially filled, covering barely ten days of imports — far below the 90-day benchmark considered standard for energy security.
The rupee has also weakened sharply, trading around 94–95 against the US dollar by May 2026, compared to roughly 60 in 2014. A weaker rupee raises the cost of oil, electronics, machinery, and other imports, feeding inflation across the economy.
Trade Deficit
India’s merchandise trade deficit widened to $282.8 billion in 2024–25 from $241.1 billion the previous year, while the trade imbalance with China has grown to roughly $116 billion.
Taken together, these are not signs of a temporary shock alone. They point to a deeper structural vulnerability in India’s economy — one that the government is now asking citizens to help absorb through voluntary austerity.
