In an extraordinary move, Prime Minister Narendra Modi has urged Indians to save foreign exchange by deferring gold purchases for a year, avoiding foreign travel, working from home and consuming less fuel. Modi’s clarion call—sounded twice in 24 hours—evoked fear among consumers about fuel shortages and price hikes, while economists viewed it as a prudent macroeconomic policy to withstand a potential oil-shock-led balance of payments crisis. Reduced discretionary spending on gold, which accounts for almost a tenth of India’s total import bill, would improve external balances, stabilise the rupee and conserve forex for essentials like oil. With benchmark crude prices staying above $100 a barrel, the rising import cost threatens to widen the trade and current account deficits, and further weaken the rupee, which touched a new low of 95.63 to the US dollar on Tuesday. Given this, Modi’s appeal for demand moderation is perhaps indicative of future uncertainties.
As it is, India is facing a gold supply shortage as shipments have been held back for over five weeks, seemingly owing to administrative glitches. First, the government delayed banks’ import authorisation for 17 days in April. When the list finally arrived, the port and airport customs clearances fell behind schedule. Lastly, there is uncertainty regarding exemption of integrated goods and services tax for precious metals. As a result, gold imports fell from about 100 tonnes in January to an estimated 15 tonnes in April—a 30-year low excluding the pandemic period. All of this raised the question whether the government was intentionally slowing down imports.
It’s no surprise that the appeal to defer gold purchases has sparked concerns about whether India is staring at another 1991 moment, when India’s forex reserves plummeted and sovereign gold had to be pledged as collateral for loans. During a BoP crisis, a country would be unable to pay for essential imports or service its external debt. But at $690 billion, India’s forex reserves can cover 10 months of imports and are nowhere near a worry zone. However, the widening current account deficit remains a concern. India’s oil import basket averaged $75 a barrel in 2025; the RBI has pegged it at $85 this year. But if global prices are to average over $100, the delicate fiscal calculation would not hold. Given the uncertain horizon, it is indeed prudent to prepare for a prolonged oil shock.
