Indian Prime Minister Modi again urged the Indian people to refrain from buying gold unless necessary and to postpone non-essential overseas travel, including holding weddings abroad.
Modi said on social media on Tuesday that despite the ongoing global wars, economic uncertainty, and supply chain disruptions, the Indian economy is still growing rapidly, but he emphasized that the Indian people still need to contribute to enhancing the strength of the Indian economy by choosing "Made in India" products and reducing unnecessary foreign exchange outflows.
Modi emphasized: "If you're going abroad for leisure travel, don't go. If you're going overseas to get married, don't do that either. And if it's not necessary, don't buy gold."
The reason for the above appeal by Modi is largely driven by the desire to reduce unnecessary foreign exchange outflows. India's gold demand is almost entirely reliant on overseas supplies, making gold one of the country's largest import items, second only to crude oil. When Indians buy more gold, it means more foreign exchange is flowing out of the country, which could widen the trade deficit and further exacerbate the downward pressure on the rupee, given already high demand for the US dollar.
India's gold imports have surged so far this year. According to the latest data, in the first four months of the current fiscal year starting in April, India's gold imports grew over 32% from the same period last year. Meanwhile, India's merchandise trade deficit widened to nearly $32 billion in July, the highest level since January.
This makes gold imports particularly sensitive for the Indian government, as unlike imports of machinery, technology or industrial inputs that can translate into future production capacity, a large part of India's demand for gold is driven by savings, weddings and religious and cultural traditions.
Gold is just one part of the external payments pressure India is currently facing. With more than 88% of its crude oil demand reliant on imports, a sustained rise in international oil prices will immediately drive up India's import costs. The ongoing Middle East conflict and tensions near the Strait of Hormuz mean the energy market remains vulnerable to further shocks.
When crude oil import costs surge, India needs more US dollars to pay for imports, and if gold imports also rise at the same time, India's trade balance and the rupee exchange rate will come under greater pressure.
Thus, Modi's speech essentially called on the public to reduce unnecessary import consumption and overseas spending at a time when external risks are rising. Overseas vacations and weddings held abroad also lead to funds flowing out of the country, as Indian citizens traveling abroad need to pay for air tickets, hotels, meals, local transportation, and other services. The scale of spending on overseas weddings may be even larger.
In May this year, Modi had proposed a similar initiative, as the impact of the US-Iran conflict on the Indian economy was particularly evident at the time. At that time, Modi had called on Indian citizens to avoid buying gold, postpone unnecessary overseas travel, and conserve gasoline and diesel over the next year. He also called on citizens to adopt home office and online meetings where possible, use public transportation and carpooling, and shift more freight from highways to railways.