India Continues to Discourage Gold Demand, Modi Calls Again: No Need for Unnecessary Purchases

Indian Prime Minister Narendra Modi has once again urged the public to reduce non-essential purchases of gold. As gold imports continue to surge, the trade deficit widens, and the rupee comes under pressure, the Indian government is seeking to curb foreign exchange outflows caused by gold on the demand side.

"If it is not necessary, do not buy gold." Modi said in a video posted on social media on Tuesday. In the context of ongoing global wars and supply chain disruptions, India needs to enhance its economic self-reliance to maintain growth momentum.

This is the second time this year that Modi has made such a public appeal. In May, he called on the Indian public to postpone non-essential gold purchases for at least a year and to cut down on foreign exchange spending on overseas tourism and destination weddings.

The reason gold has become the repeated focus of government appeals is that it is not only an important commodity for household savings, weddings, and religious festivals, but also one of India’s largest import items after oil.

Data shows that in the 2025-26 fiscal year, India’s gold imports reached $71.98 billion, a 24% increase from the previous year’s $58 billion, hitting a record high. Although import volumes actually fell by 4.8% from 757 tons to 721 tons, international gold price hikes drove the import value higher.

Gold imports account for more than 5% of India’s total merchandise imports and helped widen the trade deficit to $333.2 billion for the fiscal year.

Entering the new fiscal year, the momentum remains strong. Between April and July, India’s gold imports reached $15.17 billion, up 32.4% year-on-year; July alone saw $4.16 billion worth of imports, a 4.8% increase. At the same time, India’s trade deficit widened to nearly $32 billion in July, the highest level since January this year.

This means that even though the Indian government has previously raised gold import duties significantly, demand for gold has not cooled off completely.

On May 13, India raised import duties on gold and silver from 6% to 15%, aiming to suppress physical gold demand, reduce imports, and ease pressure on the rupee. However, the policy’s effects have not been thorough.

According to the World Gold Council, India’s net gold imports dropped by 23% year-on-year to 98.1 tons in the second quarter, hitting the lowest quarterly level since September 2020, yet official import values continued to grow rapidly.

High tariffs have also brought new side effects. Gold traders and refiners have noted an expanding discount in the unofficial market, and the World Gold Council has warned that India's illicit gold imports may exceed 100 tons in 2026.

Indian media have also reported that the government is considering cutting import duties on gold and silver to address the persistent inflow that previous duty hikes failed to curb. However, officials have yet to confirm whether a rate adjustment will be made soon.

Abundant Foreign Exchange Reserves, but Gold Remains a Policy "Weak Spot"

India’s current foreign exchange position is not in crisis. As of the week ended August 21, India’s foreign exchange reserves reached a record $729.33 billion, an increase of $38.22 billion since the end of March; its current account recorded a $7.1 billion surplus in the first quarter of this year.

However, gold imports still mean an ongoing demand for dollars.

India is the world’s second-largest gold consumer, and domestic demand relies heavily on imports. When international gold prices are high, even if physical purchase quantities do not rise in step, the import cost in US dollars increases significantly, raising the demand for dollars and adding to trade deficit pressures.

This also explains why Modi is once again reminding the public to curb gold consumption even as India’s economy posts strong growth.

From April to June, India’s GDP rose 7.8% year-on-year, significantly higher than the 6.9% seen in the same period last year and above the Reserve Bank of India’s earlier forecast of 7%. Private consumption grew 7.1%, and fixed capital formation was up 11.9%.

In other words, the Indian government is not coping with an overall economic slowdown, but rather, while maintaining fast growth, it aims to reduce unnecessary imports and foreign exchange spending to boost economic resilience against external shocks.

Peak Season Approaching: Can Gold Demand Really Cool Down?

The true test may come as traditional festival and wedding peak seasons approach.

Gold holds a special position in India’s savings, weddings, and religious activities, and administrative calls alone are unlikely to fundamentally change consumption habits. On this occasion, Modi has not announced any new legal restrictions on gold purchases or new controls on overseas travel.

However, the market has already started to respond. Jewelry stocks weakened after Modi’s latest statement, with Kalyan Jewellers dropping as much as 4.5% in morning trade, Titan losing over 1%, as investors worried that continued government pressure could affect gold demand during festive and wedding seasons.