HYDERABAD: Prime Minister Narendra Modi’s recent appeal asking Indians to avoid excessive gold purchases has reopened a long-running debate about the country’s dependence on imported bullion. The country’s gold imports have surged sharply in recent years, with official estimates placing imports at nearly $72 billion in FY2025–26.
While Modi’s remarks were aimed at reducing pressure on the rupee, industry voices argue that India’s relationship with gold runs far deeper than economics and cannot be changed through public appeals alone.
“Someone who has a marriage at home or wants to buy gold will buy it regardless,” said a market expert, Rajesh Agarwal, familiar with the bullion trade. “If the PM says don’t buy gold, people are not suddenly going to stop buying it. That’s not realistic in India.”
Industry observers say the precious metal is not treated as a luxury purchase but as a form of financial security that can be relied upon during emergencies. “People see gold as financial armour,” the expert remarked.
Drop in jewellery sales even before PM’s appeal
The bullion market, meanwhile, was already facing weakness before the PM’s comments. Traders say soaring prices, volatility and cautious consumer spending had already slowed jewellery demand this quarter. “Demand was already weak this quarter. However, the PM’s remarks did not create a huge impact,” the expert noted.
Industry estimates suggest gold jewellery sales have fallen by nearly 70 per cent in recent months, while silver jewellery demand is believed to be down between 20 and 30 per cent. At the same time, investment demand has remained relatively stable.
Gold Exchange-Traded Funds (ETFs) continue to attract investors seeking protection against market uncertainty and inflation. “ETF investment is stable and may rise further in the near term,” Rajesh said.
As concerns over imports intensified, the government also moved to tighten policy measures. In a major reversal, the Centre recently increased import duties on gold and silver to 18 per cent. The decision came after imports continued to surge despite earlier duty cuts that were intended to curb smuggling and stabilise domestic prices.
Industry participants say the earlier reduction in duties may have unintentionally encouraged even higher imports. “What happened was that people bought even more gold, imports rose and currency pressure increased,” the expert said.
However, traders also warn that steep duty hikes carry their own risks, particularly the possibility of reviving gold smuggling networks if the gap between domestic and international prices widens too sharply.
Despite these measures, some voices within the bullion industry argue that India is focusing on the wrong issue. Instead of trying to reduce consumer demand, they believe the government should redesign how gold trade itself is settled internationally.
Alternative to dollar payments suggested
A financial analyst, Prem Soni, suggested a sovereign gold-backed digital settlement system. Under the proposal, authorised refiners, bullion dealers and manufacturers would settle transactions through tokenised institutional gold inventories rather than relying on US dollar payments.
Currently, Indian importers purchasing gold from markets such as Dubai or Switzerland must convert rupees into dollars before completing transactions. Supporters of the proposal argue that a sovereign digital gold settlement bridge could significantly reduce India’s annual dollar outflow linked to bullion imports.
“The transaction would never touch the US dollar,” the expert explained. “The forex bleeding for bullion imports could be significantly reduced.”
Industry supporters also stress that the proposal does not involve asking households to surrender family jewellery or deposit personal gold holdings.
“No Indian grandmother is going to give her jewellery to the government for a small yield,” the expert said. “Instead of tokenising household jewellery, tokenise the raw bullion inventory used in the supply chain.”
At the same time, bullion markets continue to remain volatile amid global uncertainty. Although geopolitical tensions initially triggered panic buying and sharp movements in prices, traders say markets have behaved unusually in recent months.
“Historically, whenever there is a war, gold prices rise,” the expert said. “But this is one of the rare instances where global conflict coincided with a sharp correction in gold prices.”
With restrictions on imports, silver prices set to rise
Speaking on the recent restrictions on silver imports, Prem Soni warned that prices may increase in the coming months. The policy comes at a time when silver imports have reportedly been rising faster than gold. “Silver imports have recently surged, even surpassing growth trends seen in gold imports. This rise has been attributed to increased industrial demand, investment interest, and festive season purchases. However, the growing import volume has also raised concerns about trade balance and market stability.” Market experts believe that restrictions on imports could reduce availability, leading to a rise in silver prices in India. Jewellers and traders expect short-term volatility, with prices likely to fluctuate depending on supply conditions and global market trends.
