In a national address on Sunday, Prime Minister Narendra Modi urged citizens to avoid buying gold for the next year, reduce unnecessary overseas travel and curb energy consumption as the government attempts to contain rising dollar demand amid deepening geopolitical turmoil in the Middle East.
“Patriotism is not only about the willingness to sacrifice one’s life on the border,” Modi said in a speech in Hyderabad. “In these times, it is about living responsibly and fulfilling our duties to the nation in our daily lives.”
The appeal marked one of Modi’s broadest public austerity campaigns since the Covid-19 pandemic, with the government also encouraging remote work arrangements, greater use of public transportation, carpooling and electric vehicles, while calling on farmers to reduce fertilizer consumption and energy use.
Markets increasingly view the measures not as a simple conservation campaign, but as a broader macroeconomic stabilization effort aimed at containing foreign exchange pressures caused by soaring crude oil prices and rising imports.
The vulnerability stems from India’s structural dependence on imported energy and gold, both priced in U.S. dollars.
As the world’s third-largest crude oil importer after the United States and China, India imported about $123 billion worth of crude oil during the 2025 - 2026 fiscal year, making energy the single largest contributor to the country’s import bill.
Gold ranked second, with imports reaching approximately $72 billion during the same period, reflecting India’s position as one of the world’s largest gold-consuming nations.
The dual surge in oil and gold demand is intensifying pressure on the current account and the rupee at a time when geopolitical tensions are pushing global energy prices sharply higher.
Following the collapse of negotiations surrounding the U.S.-Iran conflict and concerns over the security of the Strait of Hormuz, Brent crude prices climbed above $100 per barrel, heightening fears over inflation and widening external imbalances across Asia’s energy-importing economies.
The challenge is particularly acute for India because gold functions not merely as a luxury product, but as a quasi-financial asset deeply embedded in household savings, rural wealth preservation, weddings and inheritance practices.
When geopolitical uncertainty and inflation fears intensify, Indian households historically increase gold purchases as a safe-haven store of value, further boosting dollar demand and worsening pressure on the rupee.
India’s foreign exchange reserves are already showing signs of strain.
According to the Reserve Bank of India, reserves stood at $690.69 billion as of May 1, down sharply from $728.5 billion before the escalation of the Iran conflict in late February.
While the absolute reserve level remains among the world’s largest, the pace of depletion has unsettled markets. Reserves fell by roughly $37.4 billion in March and another $7.8 billion in April as the central bank reportedly intervened aggressively to support the rupee through dollar-selling operations conducted via state-run banks.
The rupee has lost around 10 percent of its value over the past year, with roughly half of that decline occurring since the outbreak of the Iran conflict and the escalation of regional tensions.
The International Monetary Fund projects India’s current account deficit could widen to around $84 billion in 2026, reinforcing concerns that sustained energy shocks may further weaken external balances.
India has faced similar external vulnerabilities before.
During the 2013 “Taper Tantrum,” when emerging markets were rattled by signals of U.S. monetary tightening, New Delhi stabilized markets by sharply raising gold import duties and imposing restrictions on imports to protect the rupee and conserve reserves.
Yet the current policy direction also exposes a paradox at the heart of India’s financial strategy.
While the government is urging households to cut gold purchases, the central bank itself has steadily expanded its own gold holdings as part of a broader effort to diversify away from dollar-denominated reserve assets amid growing geopolitical fragmentation.
India currently holds roughly 880 tons of gold reserves, ranking seventh globally. Gold’s share of the RBI’s foreign exchange reserves rose from 13.9 percent last September to 16.7 percent at the end of March this year.
The RBI has also repatriated more than 100 tons of gold from overseas vaults back to domestic storage over the past year, moves widely viewed as part of a broader effort to strengthen sovereign financial resilience in an increasingly uncertain geopolitical environment.
India now finds itself operating within a uniquely contradictory structure in which households are buying gold as protection against instability while the central bank simultaneously accumulates gold as a strategic reserve asset.
But with private gold imports continuing to drain foreign exchange reserves and widen current account pressures, analysts expect New Delhi’s campaign to curb discretionary imports and conserve dollar reserves to intensify in the months ahead.
Copyright ⓒ Aju Press All rights reserved.