Explained: Why PM Modi is asking Indians not to buy gold for a year

PM Modi's Gold Warning Explained: How Buying Jewellery Could Hurt the Rupee

When Prime Minister Narendra Modi urged Indians on Sunday to avoid buying gold for a year, many people were surprised. In a country where gold is tied to weddings, festivals, family savings and tradition, the statement sounded almost impossible to imagine.

 

But  Modi’s appeal was not really about jewellery. It was about protecting India’s economy at a time when the country is facing a potentially dangerous combination of:

 

• soaring oil prices,
• a weakening rupee,
• rising import bills,
• and growing pressure on foreign exchange reserves.

 

The Prime Minister made the remarks while speaking about the economic risks emerging from the ongoing West Asia conflict and the disruption around the Strait of Hormuz — one of the world’s most important oil shipping routes. Global crude oil prices have surged from around $70 per barrel to nearly $126 per barrel in recent weeks.

 

 

“Petrol-diesel has become so expensive across the world. It is the responsibility of all of us that the foreign exchange spent on purchasing petrol-diesel should also be saved by conserving petrol-diesel,” the Prime Minister said.

 

For India, that is a serious problem.

 

India imports nearly 85% of its crude oil needs. Every time oil prices rise sharply, India has to spend far more dollars to buy energy from abroad. At the same time, India is also one of the world’s largest gold importers. That means the country is importing two extremely expensive things at the same time — oil and gold — and paying for both in US dollars.

 

That is where the rupee comes into the story.

 

The Indian rupee has already come under heavy pressure because of rising crude prices and fears that India’s import bill could balloon further if the West Asia crisis deepens. The rupee recently weakened close to record low levels and was trading around 94.9 against the US dollar on Monday amid oil-price concerns and global uncertainty.

 

To understand why gold matters here, imagine India as a household.

 

Suppose a family earns ₹1 lakh a month but suddenly has to spend much more on petrol because fuel prices double. At the same time, the family continues spending heavily on luxury jewellery and imported items. Eventually, savings begin shrinking, debt increases and the household comes under financial pressure.

 

The same thing happens to countries.

 

India earns dollars through exports, foreign investments, remittances and services like IT. But when imports become too expensive — especially oil and gold — more dollars leave the country than come in. That widens what economists call the current account deficit.

 

And when demand for dollars rises sharply, the rupee weakens.

 

A weaker rupee then creates another problem: imports become even more expensive.

 

For example, if crude oil costs $100 per barrel:

 

at ₹80 per dollar, India pays ₹8,000,

but at ₹95 per dollar, India pays ₹9,500 for the same barrel.

 

So even if oil prices globally stay unchanged, India still ends up paying more simply because the rupee has weakened.

 

The same applies to gold.

 

If Indians continue buying large quantities of imported gold during a period of global crisis, more dollars leave the country. That adds further pressure on the rupee and foreign exchange reserves.

 

This is why Modi specifically mentioned gold.

 

“I would appeal to people not to buy gold for weddings for one year,” PM Modi said.

 

In India, gold is not viewed as just a luxury purchase. Families buy gold during:

 

weddings,

Akshaya Tritiya,

Diwali,

births,

and festivals.

 

Many households also use gold as a form of savings or emergency security. During uncertain times, people often buy even more gold because they see it as “safe”.

 

But from an economic perspective, gold creates a challenge because it does not directly help productive economic activity the way industrial machinery or infrastructure imports do.

 

Oil is essential because it powers transport, factories and electricity generation. Gold, however, largely sits in lockers, homes and jewellery collections. Economists therefore classify large-scale gold imports as “non-productive imports”.

 

As Anand K Rathi, Co-Founder, MIRA Money explains in a LinkedIn post: 

 

"We are the largest consumer of gold. We buy gold & silver for investing & for marriages. The commodities are valued in dollars. Thus when we buy gold we convert INR & create demand for dollar. Here is the gold import data.

 

FY 2024: 744 tonnes - $46bn

FY 2025:755 tonnes - $58 bn

FY 2026: 721 tonnes- $72bn

 

When you buy less gold, you import less and thus create less demand for dollar against INR.

 

When you & I travel abroad, we sell INR and buy a foreign currency. If we travel more we sell more and end up creating a forex drain. In the past year alone we have spent $20bn by travelling abroad.

 

If we put these 2 numbers together, we roughly create demand for $100bn. Our deficit numbers can reduce if we can control the purchase of gold & travel in India." 

 

This is not the first time an Indian government has worried about gold buying.

 

In the past, governments have:

 

increased gold import duties,

restricted imports,

and promoted alternatives like Sovereign Gold Bonds to reduce physical gold demand.

 

Back in 2013 as well, India faced a severe rupee crisis partly linked to rising oil and gold imports. The government then sharply increased gold import duties to control dollar outflows.

 

This time, Modi has not announced any ban or restriction. People are still free to buy jewellery and gold. His statement was an appeal, not a legal order.

 

But markets interpreted the comments as a sign that the government is increasingly worried about the economy’s external vulnerability.

 

According to Reuters and Bloomberg, jewellery stocks fell sharply after Modi’s comments. Companies like Titan and Kalyan Jewellers reportedly dropped as much as 11% as investors worried that consumers could cut back on discretionary gold purchases.

 

The stock market also reacted negatively because investors viewed Modi’s broader message — asking people to reduce fuel usage, avoid unnecessary foreign travel and revive work-from-home practices — as a sign that the government is preparing for prolonged economic stress linked to the West Asia conflict.

 

Another reason the government is worried is inflation.

 

A weaker rupee does not just affect imported gold and oil. It can make many imported products more expensive:

 

• electronics,
• medicines,
• chemicals,
• machinery,
• fertilisers,
• edible oils,
• and even airline tickets.

 

That can eventually increase inflation across the economy.

 

This is why Modi’s comments were really about conserving foreign exchange and reducing non-essential dollar outflows during a difficult global period.

 

By discouraging discretionary imports like gold and unnecessary overseas spending, policymakers are trying to reduce pressure on the country’s dollar reserves.