Why PM Modi asked Indians not to buy gold for a year? WION explains

Prime Minister Narendra Modi on Sunday directed people to help the nation conserve petrol, diesel and foreign exchange reserves by using public transport, avoiding unnecessary foreign travel and the use of non-essential gold purchases. PM Modi's appeal came while addressing a BJP rally in Hyderabad as US President Donald Trump rejected the latest peace proposals of Iran, resulting in rise of a global crude oil prices to more than $105 a barrel and intensifying concerns over inflation and energy security worldwide. The escalating tension in West Asia has kept the Strait of Hormuz, one of the world’s most critical oil shipping routes, disrupted for weeks, prompting fears of a prolonged crisis in the supply chain.

Why does PM Modi appeals citizens to avoid buying gold?

PM Modi on Sunday also appealed to citizens to avoid buying gold for at least one year, claiming that gold imports put additional pressure on India’s foreign exchange reserves amid a global crisis. India is one of the largest importers of gold in the world, where its demand rises exponentially during weddings and festive seasons.

India consumes an estimated 700 to 800 tonnes of gold annually, accounting for nearly 9 per cent of its total import bill, after crude oil. The rise in gold demand led to the import of the item in large amounts, which put pressure on India's currency as it increased dollar outflow and widened the country’s import bill.

How does gold affect India's economy?

As we know, gold influences the strength of a currency. When a large amount of gold is imported, it increases dollar demand and weakens the Indian currency, as gold shapes money in more ways than most people think of it. Gold in India is considered a cultural symbol, a store of value and a silent indicator of economic stability.

The best part of the item is that, despite modern economies which run on digital systems and complex policies, gold still decides how strong or weak a currency is. The import behaviour of gold directly affects the currency. When gold prices rise at the global level, the import bill of the item rises too, increasing the outflow of foreign exchange money from the country. If this outflow grows and exceeds more than required, it can put heavy pressure on the currency and may lead to depreciation.

Here are some of the major areas impacted by rising gold imports in India:

1. Huge Drain on Foreign Exchange Reserves

India is the world’s second-largest consumer of gold, yet it depends almost entirely on imports to meet demand. Since gold purchases are made in US dollars, large-scale imports lead to a significant outflow of foreign currency. The issue has become more significant as India’s foreign exchange reserves, which had risen close to $728.49 billion, have experienced volatility and declined toward the $690.69 billion mark due to increasing import costs and currency-related pressures. A weaker rupee further raises the domestic cost of imports, particularly crude oil and gold, increasing the country’s external economic vulnerabilities. Every increase in gold imports puts additional pressure on the Reserve Bank of India’s foreign exchange reserves, which are also required for critical imports such as crude oil.

2. Increasing Pressure on the Indian Rupee

Strong demand for US dollars to finance gold imports has added strain on the Indian rupee, which has fallen to historic lows. As of May 11, 2026, the rupee was trading near Rs 95.25 against the US dollar. To import gold, Indian buyers exchange rupees for dollars, increasing the supply of rupees in the market and weakening their value. A weaker rupee raises the cost of other imported goods, including fuel, electronics, and medicines. Over the past few years, the rupee has depreciated significantly—from around Rs 74–75 per dollar in 2021 to below Rs 95 in 2026, marking a decline of nearly 27–28 per cent. The pressure has intensified amid rising crude oil prices, tensions in the Middle East, and higher dollar outflows linked to imports and uncertainty over global energy supply routes.

3. Trade and Current Account Deficit (CAD)

A trade deficit occurs when a country’s imports exceed the value of its exports. In FY26, India’s trade deficit climbed to $333.2 billion. The Reserve Bank of India (RBI)'s data indicates that India's CAD stood at $13.2 billion, or 1.3 per cent of GDP, in the October-December quarter of FY26, compared to $11.5 billion in the last quarter. Precious metals such as gold and silver now make up over 5 per cent of the country’s total imports. By reducing gold purchases, the government aims to shrink this deficit, which could help stabilise and strengthen the Indian rupee.