Indian Prime Minister Narendra Modi again urged citizens to refrain from buying gold unless absolutely necessary and to postpone non-essential overseas travel, including destination weddings.
Modi said on social media Tuesday that India's economy continues to grow rapidly despite ongoing global conflicts, economic uncertainty and supply chain disruptions, but stressed that citizens still need to contribute to strengthening the economy by choosing 'Made in India' products and reducing unnecessary foreign exchange outflows.
Modi emphasized: 'If you are going abroad for leisure travel, don't go. If you are going abroad to get married, don't do that either. If there is no need, don't buy gold.'
The most immediate consideration behind the appeal is to reduce unnecessary foreign exchange outflows. India's gold demand is almost entirely dependent on overseas supply, making gold one of the country's largest import items, second only to crude oil. When Indians buy more gold, more foreign exchange flows out of India, potentially widening the trade deficit and adding to depreciation pressure on the rupee at a time when dollar demand is already elevated.
Gold imports have surged this year. According to the latest data, imports in the first four months of the fiscal year starting in April rose more than 32% from a year earlier. Meanwhile, India's merchandise trade deficit widened to nearly $32 billion in July, the highest since January.
That makes gold imports particularly sensitive for the government. Unlike imports of machinery, technology or industrial inputs, which can translate into future production capacity, a large portion of India's gold purchases stems from savings, weddings and religious and cultural traditions.
Gold is only part of India's external payment pressures. The country relies on imports for more than 88% of its crude oil needs, so sustained increases in international oil prices immediately raise import costs. With the ongoing Middle East war and tensions near the Strait of Hormuz, energy markets remain vulnerable to further shocks.
When crude oil import costs rise sharply, India needs more dollars to pay for imports. If gold imports are also increasing at the same time, India's trade balance and the rupee exchange rate will face greater pressure.
Essentially, Modi's speech is a call to reduce non-essential import consumption and overseas spending as external risks rise. Overseas vacations and weddings abroad also lead to funds flowing out of the country, as Indians traveling abroad need to pay for air tickets, hotels, meals, local transportation, and other services. The spending scale for overseas weddings may be even larger.
In May, Modi proposed a similar initiative as the US-Iran conflict had a significant impact on India's economy at the time. He called on Indians to avoid buying gold, postpone non-essential overseas travel, and conserve gasoline and diesel over the next year. He also urged people to adopt work-from-home, online meetings, and use public transportation and carpooling when possible, and to shift more freight from roads to railways.