Prime Minister Narendra Modi’s appeal to Indian citizens to avoid purchasing gold for weddings for one year struck many as unusual — gold is not just a commodity in India, it is woven into the fabric of every major life event, from weddings to births to religious ceremonies. So why is the Prime Minister asking the country to give it up, even temporarily? The answer lies in a confluence of a global oil shock, a widening current account deficit, and a foreign exchange reserve under pressure.
What is the connection between gold and India’s forex crisis?
India is the world’s second largest consumer of gold, importing between 700 and 900 tonnes annually in normal years. Gold is almost entirely imported — India has negligible domestic gold production relative to its consumption. Every tonne of gold that enters the country has to be paid for in US dollars, draining the country’s foreign exchange reserves.
In a normal year, India’s gold import bill runs to approximately USD 35-45 billion. In a year where global gold prices are near record highs — as they are now, with gold trading above USD 3,000 per troy ounce — that bill climbs further. When you combine a record gold import bill with a simultaneously surging crude oil import bill driven by the Middle East war, the pressure on India’s foreign exchange reserves becomes acute.
What is a current account deficit and why does it matter?
India’s current account is essentially a scorecard of what the country earns from the rest of the world versus what it pays out. Exports, remittances from the Indian diaspora, and services revenue come in on one side. Imports — primarily crude oil, gold, electronics, and machinery — go out on the other.
When outflows exceed inflows, India runs a current account deficit, which has to be financed by capital inflows — foreign direct investment, foreign portfolio investment, and external borrowing. If those capital inflows slow down or reverse — as they do during global risk-off episodes — the deficit has to be funded by drawing down foreign exchange reserves, which puts pressure on the rupee.
Gold and crude oil are the two largest contributors to India’s import bill and therefore the two biggest drivers of the current account deficit. Crude oil is non-negotiable — factories, trucks, power plants, and kitchens need it. Gold, by contrast, is largely discretionary, particularly the portion purchased for weddings and jewellery.
How bad is the current situation?
The ongoing Middle East war has pushed crude oil prices from around USD 70 per barrel to approximately USD 126 per barrel. India imports roughly 85% of its crude oil needs, making it extremely sensitive to global oil price movements. At USD 126 per barrel, India’s annual crude import bill is estimated to have surged by tens of billions of dollars compared to just a year ago.
Oil marketing companies — Indian Oil, Bharat Petroleum, and Hindustan Petroleum — are together absorbing losses of approximately ₹30,000 crore per month by not passing the full price increase to consumers. The government is simultaneously managing pressure on the fiscal deficit, the current account deficit, and the rupee, all at the same time.
Adding a near-record gold import bill on top of a near-record crude oil import bill is a combination that strains even a reasonably healthy forex reserve position.
Why specifically wedding gold?
India’s gold demand is heavily concentrated around weddings. The wedding season — typically between October and February, with peaks around auspicious dates — drives a disproportionate share of annual gold jewellery purchases. A significant reduction in wedding gold buying, even for one year, could meaningfully reduce the country’s overall gold import demand.
PM Modi’s appeal is therefore targeted at the single largest discretionary source of gold demand in the country. It is not a ban — he has no legal mechanism to prevent gold purchases — but a moral appeal aimed at shifting behaviour at scale. If even a fraction of the estimated 10-12 million weddings that take place in India annually reduce their gold purchases, the aggregate impact on import demand could be material.
Has India tried to curb gold imports before?
Yes, and with some success. In 2013, when India faced a severe current account crisis — the deficit had ballooned to nearly 4.8% of GDP — the government raised gold import duties sharply and introduced the 80:20 scheme, which mandated that importers re-export 20% of every gold shipment before being allowed to import more. Gold imports fell sharply in response. Import duties on gold currently stand at elevated levels compared to historical norms, though enforcement of informal import channels remains a challenge.
The government has also periodically launched gold monetisation schemes and sovereign gold bonds to channel domestic gold demand into financial instruments rather than physical imports, with moderate success.
What does this mean for the gold and jewellery industry?
For listed jewellery companies — Kalyan Jewellers, Titan Company’s Tanishq, Senco Gold, and others — PM Modi’s appeal introduces a degree of near-term demand uncertainty, particularly around the wedding season. However, analysts and industry observers typically note that aspirational gold demand in India is deeply resilient and tends to be deferred rather than permanently cancelled. A one-year pause, if it materialises at all, is unlikely to structurally alter long-term gold consumption trajectories in a country where gold ownership is culturally embedded across income levels.
The more immediate market impact is likely to be on sentiment rather than fundamentals, with investors in jewellery stocks watching for any follow-up policy action — such as further import duty increases — that might accompany the Prime Minister’s appeal.
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.