Why India cannot quit gold: The data behind Modi’s appeal and the hidden cost of a nation’s obsession

Prime Minister Narendra Modi's appeal to Indians to stop buying gold for weddings for one year has reignited a debate that Indian policymakers have wrestled with for decades. India's love for gold is not sentiment — it is a macroeconomic force that shapes the country's trade balance, currency, and fiscal health in ways that few single commodities do anywhere in the world. Here is the complete data-driven picture of why gold is India's most expensive habit, and why the Prime Minister felt compelled to ask a billion people to give it up. How much gold does India actually consume? India is the world's second largest consumer of gold after China, accounting for roughly 25% of global gold demand in a typical year. The World Gold Council estimates India's annual gold demand at between 700 and 900 tonnes in normal years, though this figure has touched 1,000 tonnes in peak years. To put that in perspective, the entire annual gold production of South Africa — one of the world's largest gold mining nations — is approximately 100 tonnes. India consumes the equivalent of nearly eight South Africas' worth of gold production every year. Of this, jewellery accounts for the overwhelming majority — typically 550 to 650 tonnes annually. Investment demand in the form of bars and coins adds another 150 to 200 tonnes. Technology and industrial use is negligible in comparison. What does India's gold import bill look like in rupees and dollars? India's gold import bill has been one of the most persistent drains on the country's foreign exchange reserves. In FY23, India imported gold worth approximately USD 35 billion. In FY24, this climbed to around USD 45 billion as global gold prices rose and domestic demand rebounded post-pandemic. In FY25, with gold prices hitting successive record highs, the import bill pushed towards USD 50 billion. At current global gold prices — which have surpassed USD 3,200 per troy ounce in 2026, near all-time highs — and with the rupee under pressure from the oil shock simultaneously, India's FY26 gold import bill is on track to be the largest in the country's history, potentially exceeding USD 55-60 billion. Converting that to rupees at a rate of approximately ₹85 to the dollar, India is spending somewhere between ₹4.5 lakh crore and ₹5 lakh crore on gold imports in a single fiscal year. To contextualise that figure: India's entire defence capital expenditure budget for FY26 is approximately ₹1.72 lakh crore. The country's total expenditure on the rural employment guarantee scheme MGNREGS is around ₹86,000 crore. India spends more on gold imports than it does on defence capital procurement and MGNREGS combined — by a significant margin. How much of India's gold demand comes from weddings? This is the critical data point behind PM Modi's appeal. Weddings are the single largest driver of gold jewellery demand in India. The World Gold Council has consistently estimated that 50-55% of India's annual gold jewellery demand is linked directly to weddings and associated ceremonies — engagement functions, mehendi, reception, and related rituals where gifting gold is customary. India conducts an estimated 10 to 12 million weddings every year, making it the largest wedding market in the world by volume. The average Indian wedding involves gold purchases ranging from 20 grams at the lower end to 200-300 grams or more at the upper end, covering bridal jewellery, gifts from both families, and ceremonial items. A conservative estimate of 50 grams per wedding across 10 million weddings implies 500 tonnes of gold demand — more than half of India's total annual jewellery consumption — attributable entirely to the wedding occasion. If Indian households were to meaningfully reduce wedding gold purchases for even one year, the theoretical reduction in import demand could be 200-300 tonnes, worth USD 18-25 billion at current prices. That is not a marginal number — it is the equivalent of nearly 40% of India's annual current account deficit in a good year. What is gold's role in India's current account deficit? India's current account deficit — the gap between what it earns and what it pays the rest of the world — is structurally driven by two commodities above all others: crude oil and gold. Together, they typically account for 60-70% of India's merchandise import bill. In FY25, India's current account deficit was approximately USD 23 billion, or around 0.7% of GDP — a manageable level. However, the simultaneous shock of crude oil prices doubling to USD 126 per barrel and gold prices hitting record highs above USD 3,200 per ounce has dramatically worsened the import bill in FY26. Early estimates suggest India's current account deficit could widen to 2.5-3% of GDP in FY26 — a level that begins to attract concern from currency markets and rating agencies. Crude oil is non-negotiable. India imports approximately 85% of its petroleum needs and cannot meaningfully reduce that volume in the short term without economic disruption. Gold, by contrast, is the one large import category where demand is substantially discretionary. This is precisely why policymakers consistently look to gold when seeking to compress the current account deficit in a crisis. Has the government tried to reduce gold imports before, and did it work? The most dramatic intervention came in 2013, when India's current account deficit had ballooned to 4.8% of GDP — a level that was contributing to the rupee's sharp depreciation during the taper tantrum episode. The government raised gold import duties from 2% to 10% in a series of steps, and introduced the 80:20 scheme requiring gold importers to re-export 20% of every shipment. The results were immediate and significant — gold imports fell from a record 162 tonnes in May 2013 to under 20 tonnes in some subsequent months. The current account deficit narrowed sharply. However, the restrictions also had unintended consequences. Smuggling of gold — which had been declining for years — surged. The Directorate of Revenue Intelligence reported significant increases in gold seizures through 2013 and 2014. Import duties were eventually reduced and the 80:20 scheme scrapped. Import duties on gold currently stand at 15% including GST, which is among the highest in the world for the commodity, yet demand has proven resilient. The government has also periodically launched instruments designed to channel domestic gold demand away from physical imports. The Sovereign Gold Bond scheme, launched in 2015, allows investors to gain exposure to gold price movements through government securities without physically importing metal, earning an additional 2.5% interest per annum. The Gold Monetisation Scheme allows holders of physical gold to deposit it with banks and earn interest. Both schemes have had moderate uptake but have not fundamentally altered India's appetite for physical gold ownership. Why is India's gold demand so structurally resilient? Gold's role in India goes far beyond investment or ornamentation. It functions as a parallel financial system for hundreds of millions of households — particularly in rural areas — who have historically had limited access to formal banking, insurance, and investment products. Gold is the one asset that is universally understood, universally accepted as collateral, privately held without documentation, and perceived as inflation-proof across generations. According to the World Gold Council, Indian households collectively hold an estimated 25,000 tonnes of gold — the largest private gold holding of any nation on Earth, worth approximately USD 2.5 trillion at current prices. This private hoard has accumulated over centuries and represents stored wealth across every income level, from the wealthiest urban families to the smallest rural households. This embedded cultural and financial role makes gold demand in India uniquely price-inelastic compared to almost any other consumer market. What is the rupee impact of gold imports? Every dollar spent on gold imports has to be paid in foreign currency, which means Indian importers — jewellers, banks, and refiners — must buy US dollars in the currency market, creating selling pressure on the rupee. In a normal year, this pressure is absorbed by capital inflows. In a year of simultaneous crude oil shock and elevated gold imports, the combined dollar demand from oil and gold importers can overwhelm inflows and accelerate rupee depreciation. A weaker rupee then creates a feedback loop: imports become more expensive in rupee terms, the import bill rises further, putting more pressure on the current account, which puts more pressure on the rupee. Breaking this cycle requires either a reduction in import volumes, an increase in export earnings, or a stabilisation of capital inflows — ideally all three simultaneously. What would it actually take for Modi's appeal to work? The appeal, taken literally, is asking for a voluntary, culturally significant behavioural change at scale — something that is historically very difficult to achieve through persuasion alone. India's wedding calendar is fixed around auspicious dates determined by the Hindu almanac, and gold gifting is not merely a financial decision but a social one, embedded in expectations from both families, community norms, and centuries of tradition. However, even a partial behavioural shift — if say 20-25% of weddings meaningfully reduced gold purchases — could have a detectable macroeconomic effect. Combined with the policy tools available to the government — import duty increases, further promotion of sovereign gold bonds, tighter regulation of informal gold channels — the appeal may be part of a broader signalling strategy ahead of more formal policy measures. The more immediate market signal is that PM Modi's language suggests gold import duty increases are being actively considered. A duty hike to 18-20% — from the current effective rate of around 15% — would be consistent with past crisis-period responses and could come alongside or after the anticipated petrol and diesel price revision before May 15. Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors are advised to consult a registered financial advisor before making any investment decisions. Business Upturn does not hold any position in the securities mentioned.

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Why India cannot quit gold: The data behind Modi’s appeal and the hidden cost of a nation’s obsession

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