Why Gold Has Become India's New Forex Flashpoint: ₹72 Bn Obsession Weakening The Rupee

Prime Minister Narendra Modi on Sunday urged Indians to avoid non-essential gold purchases for one year as the government attempts to reduce pressure on the country’s foreign exchange reserves amid rising global uncertainty, elevated crude oil prices and supply-chain disruptions linked to the West Asia conflict.

Speaking at an event in Hyderabad, Modi appealed to citizens to help conserve foreign exchange by reducing discretionary imports and avoiding unnecessary overseas spending.

"We have to save foreign exchange by any means," the Prime Minister said, while specifically urging people to avoid buying gold for weddings and non-essential purposes over the next year.

The comments triggered an immediate reaction in the stock market, with shares of major jewellery companies witnessing sharp selling pressure on Monday.

Titan Company fell as much as 6.4%, while Kalyan Jewellers declined 8.3%. Sky Gold and Diamonds plunged over 12%, and Senco Gold dropped nearly 11%. Shares of PN Gadgil Jewellers, PC Jeweller and Tribhovandas Bhimji Zaveri also came under heavy pressure despite some companies reporting strong quarterly earnings.

Why Gold Has Become A Concern

India is one of the world's largest consumers of gold, importing nearly all of its domestic requirement. The country consumes around 700-800 tonnes of gold annually while domestic production remains negligible at barely 1-2 tonnes.

This heavy dependence on imports makes gold one of India’s largest foreign exchange outflows after crude oil.

India's gold imports surged to a record $72 billion in FY26, marking a 24% jump compared to $58 billion in FY25. Gold now accounts for nearly 9% of India's total import bill.

Unlike industrial imports, gold imports contribute relatively little towards manufacturing output or exports at a large scale. However, they require massive dollar outflows, especially during periods of global economic uncertainty when oil prices are also rising sharply.

The Prime Minister's appeal comes at a time when geopolitical tensions involving Iran, Israel and the United States have already pushed up energy prices globally and increased pressure on India’s trade balance and currency stability.

India's foreign exchange reserves declined by $7.79 billion to $690.69 billion during the week ended May 1, highlighting the growing pressure on the external sector.

Commodity experts said the government's message should be viewed primarily from a macroeconomic and import-management perspective.

"PM Modi's remarks on delaying gold purchases should be viewed primarily from the perspective of India’s macroeconomic stability and import management," said Jateen Trivedi, VP Research Analyst - Commodity and Currency at LKP Securities.

"India is one of the world’s largest gold importers, and during periods of elevated crude oil prices and global uncertainty, high gold imports put additional pressure on the country’s trade deficit and the rupee," he said.

According to Trivedi, the timing of the government's appeal is significant because India is already dealing with a combination of higher crude prices, geopolitical tensions and pressure on the rupee due to rising import bills.

"Gold imports require large outflows of foreign currency, mainly dollars, and at a time when policymakers are trying to stabilize the rupee and control external sector risks, discouraging non-essential imports becomes an important strategy," he added.

Demand Already Slowing

Interestingly, Modi's comments have come at a time when India’s gold imports are already witnessing a sharp decline.

Gold imports fell from nearly 100 tonnes in January 2026 to around 65-66 tonnes in February before plunging further to nearly 20-22 tonnes in March. April imports are estimated at just 15 tonnes — among the lowest monthly levels recorded in nearly three decades outside the Covid period.

The decline has been attributed not only to record-high gold prices but also to disruptions in the import pipeline caused by global supply-chain uncertainty.

Despite the recent slowdown, analysts believe the government wants to ensure that gold imports remain under control as global volatility continues.

Trivedi said the Prime Minister's appeal is unlikely to alter India's long-term affinity towards gold because the metal remains deeply linked to savings, investments and cultural buying patterns, especially during weddings and festivals.

However, he noted that the comments could temporarily slow discretionary jewellery demand and create cautious sentiment across bullion-linked businesses.

GTRI Flags UAE Gold Import Surge

The Prime Minister's appeal has also received support from the Global Trade Research Initiative (GTRI), which has urged the government to review tariff concessions offered under the India-UAE trade agreement.

According to GTRI, India's gold bar imports from the United Arab Emirates surged from $2.9 billion in 2022 before the India-UAE CEPA agreement to $16.5 billion in 2025.

Under the India-UAE Comprehensive Economic Partnership Agreement (CEPA), India allowed gold imports from the UAE at tariffs one percentage point lower than normal import duties through a Tariff Rate Quota system.

The benefit became even more attractive after India reduced normal gold import duty from 15% to 6% in the 2024 Budget, effectively allowing gold imports from Dubai at around 5% duty.

GTRI has raised concerns that the UAE neither mines gold nor undertakes significant processing activity, suggesting that much of the trade may involve routing gold from third countries through Dubai simply to take advantage of lower tariffs.

The think tank has recommended tighter Rules of Origin checks and exclusion of precious metals from future trade agreements to protect India's trade balance and foreign exchange reserves.

Temporary Restraint, Not Anti-Gold Policy

Analysts stressed that the government’s message should not be interpreted as a structural negative stance on gold ownership.

"Overall, the government's message appears more focused on encouraging temporary restraint in imports and preserving macro stability rather than indicating any structural negative stance towards gold ownership itself," Trivedi said.

For now, the appeal signals that policymakers are increasingly worried about the combined impact of expensive crude oil, geopolitical instability and rising import bills on India's macroeconomic stability, with gold imports emerging as one of the most visible pressure points.