Indian Citizens Urged to Avoid Gold Purchases for One Year
The people of India have been urged to halt gold purchases for one year, as the economic impacts of the US-Israel-Iran conflict continue to widen. “In the interest of the nation, we must decide that for one year, even during home celebrations, we will not purchase gold jewellery,” stated Prime and Minister Narendra Modi on 10 May. He added that patriotism involves living responsibly and fulfilling duties to the state during such crises.
Three days later, India also increased gold import duties to 15%, up from the previous 6%. This policy presents a significant challenge for the world’s second-largest market for gold jewellery and investment. In the last fiscal year ending 31 March, the nation imported precious metals worth US$72 billion.
In India, gold holds deep cultural significance, frequently gifted during weddings and passed down through generations. Modi noted that gold purchases deplete substantial foreign exchange reserves at a time when India is already grappling with rising oil import costs. The South Asian nation imports over 85% of its oil requirements. Oil prices surged by up to 70% at their peak following the US-Israel-Iran conflict and the effective closure of the Strait of Hormuz, a vital trade route for approximately 20% of global oil and liquefied natural gas supply.
The spike in energy prices has pressured governments worldwide to implement cost-saving measures. While many nations focus on energy conservation, India appears unique in asking citizens to reduce spending on precious metals. Gold is a major economic concern because both gold and oil imports are largely paid for in US dollars. Increased demand for dollars threatens to weaken the Indian rupee, which has depreciated by approximately 5% against the dollar this year, potentially triggering inflationary pressures.
Jewellery artisans in New Delhi expressed deep concern. Sanjeev Agarwal, a New Delhi-based artisan, stated that the situation is worse for the jewellery sector than during the Covid-19 pandemic. Another artisan, Abhishek Agarwal, noted that business owners fear they will struggle to survive if public demand ceases.
Professor Sundaravalli Narayanaswami, head of the India Gold Policy Centre at the Indian Institute of Management Ahmedabad, told the BBC that over 90% of India’s gold needs are met through imports. “Every year, 600 to 700 tonnes of gold are imported, while exports are very low, leading to gold accumulation in households,” she explained. It is estimated that Indian women hold approximately 11% of the world’s gold reserves, though this figure varies.
Gold prices have risen sharply in recent years, breaching US$5,000 per ounce for the first time in January. Gold accounts for roughly 9% of the country’s total imports. Unlike oil, gold is not considered an essential commodity for industrial production, but rather a jewellery or investment instrument.
In addition to the gold moratorium, Modi has encouraged the use of public transport, carpooling, working from home, and limiting non-essential foreign travel to reduce fuel consumption. He also requested families to reduce cooking oil usage and urged farmers to limit fertiliser use. While other nations have implemented fuel quotas or energy reduction requests, analysts from Capital Economics, such as Hamad Hussain, noted that Modi’s appeal regarding gold is “unusual,” though justifiable given India’s massive import bill for the commodity.