CHENNAI: Prime Minister Narendra Modi’s appeal urging citizens to avoid buying gold for a year, reduce fuel consumption and limit non-essential foreign travel has triggered debate among economists and traders, with experts interpreting the remarks as a warning over mounting pressure on India’s foreign exchange reserves amid rising crude oil prices and continuing tensions in gulf.
Addressing a public gathering in Telangana on Sunday, Modi urged citizens to revive COVID-era practices such as work from home (WFH), online meetings and video conferences to reduce fuel consumption.
He also appealed to people to postpone non-essential foreign travel, and to minimise dependence on imported chemical fertilisers. However, it was his request asking people to avoid buying gold for one year that drew significant attention.
“Gold purchases are another area where foreign exchange is used extensively,” Modi said. “Avoiding gold purchases, particularly for weddings, will help the country conserve forex reserves during a challenging global economic situation.”
Speaking to DT Next, Soma Valliyappan, renowned economist and author of over 60 books, said that the Prime Minister’s remarks were directly linked to India’s widening import expenditure and pressure on the current account deficit. India remains a net import-dependent country where imports continue to exceed exports, resulting in heavy outflow of US dollars.
“India’s account deficit is around 1.3% (Rs 1.25 lakh crore). The situation is alarming due to increasing import costs. A major portion of India’s dollar reserves is spent on crude oil imports and gold purchases,” he explained.
According to him, India imports nearly $80 billion worth of gold annually, amounting to nearly Rs 8 lakh crore. “A huge chunk of India’s foreign exchange reserves is spent on importing gold. That is the reason the PM has appealed to citizens to avoid buying gold for one year,” he added.
Valliyappan also pointed out that the rupee has weakened sharply against the USD over the past year while global crude oil prices have also surged because of the prolonged conflict in West Asia and disruptions around the Strait of Hormuz. “Earlier, $1 was around Rs 85; now, it’s nearing Rs 95. At the same time, crude oil prices have increased from nearly $75/barrel to over $105. Naturally, India has to spend significantly 35% more dollars on imports,” he opined. “If oil prices continued to rise and the rupee weakens further, India’s import bill could place additional pressure on forex reserves and inflation.”
Meanwhile, gold traders said that Modi’s remarks may not have a major impact on consumer demand, especially in a country where gold continues to be viewed as a safe investment and a cultural necessity.
A fact concurred by Santhakumar, general secretary, The Madras Jewellers and Diamond Traders Association, who added: “Gold prices have increased from nearly Rs 50,000 to over Rs 1.2 lakh per sovereign within 2 years, but people still believe gold is the safest form of savings and investment. The PM’s appeal is aimed at protecting the national economy and preserving forex reserves, but it hasn’t affected the public’s buying sentiment or gold sales.”