Key Takeaways:
Prime Minister Narendra Modi’s appeal for a one-year halt on gold purchases highlights the growing economic strain on India from sustained geopolitical conflict in the Middle East.
Indian jewelers’ shares tumbled Monday after Prime Minister Narendra Modi made a rare public appeal for citizens to stop buying gold for at least a year, a measure intended to ease pressure on the nation’s widening trade deficit and weakening currency. The plea reflects deepening concern in New Delhi over the economic fallout from elevated oil prices driven by the prolonged conflict involving Iran, which threatens India’s growth trajectory.
“We are spending a lot of foreign exchange on gold imports, and people should avoid this,” Modi said in a public address, while also urging citizens to cut fuel consumption and reduce non-essential foreign travel. The remarks underscore the government’s view that the West Asia conflict is a larger threat to India’s current account deficit than to its overall growth, according to sources familiar with the matter.
The market reaction was immediate and sharp. Shares of Senco Gold Ltd. plunged as much as 10.8%, while Kalyan Jewellers India Ltd. dropped 9.5% in Monday trading. The move follows a period of intense pressure on India’s economy, with the rupee sliding to an all-time low of 95.33 per dollar and foreign exchange reserves falling to $691 billion in April from a peak of $728.5 billion in February.
The core issue is a widening current account deficit (CAD), which rating agency Crisil and the International Monetary Fund project could reach 2% of GDP, or about $84.5 billion, in 2026. A CAD means India spends more foreign currency on imports than it earns from exports and other income. While financed through foreign investment, that funding becomes precarious when global uncertainty pushes investors toward safe-haven assets like the U.S. dollar.
India’s economy is highly sensitive to energy prices, as it imports the majority of its crude oil. With the conflict in the Middle East pushing Brent crude above the $100-per-barrel mark, the nation’s import bill has surged. Gold is the second-largest item on that bill, making it a clear target for import reduction measures.
The economic pressure extends to households. A weaker rupee increases the cost of all imports, feeding into domestic inflation. India’s CPI inflation rose to 3.4% in March from 2.74% in January. Should these pressures continue, the Reserve Bank of India (RBI) could be forced to keep its policy repo rate, currently at 5.25%, elevated or even tighten it further to defend the currency and control prices. This would translate into higher borrowing costs for home loans and corporate investment, dampening consumption—a primary driver of India’s economy.
In response to the mounting pressure, the RBI is reportedly considering several measures to bolster its foreign exchange buffers. According to sources familiar with the discussions, the central bank is studying a revival of a 2013 mechanism to attract dollar deposits from non-resident Indians, a program that previously brought in about $26 billion.
Another option under consideration is the elimination of a 5% withholding tax on overseas government bond investors to encourage capital inflows. While foreign investors were net buyers of Indian bonds in 2025, that momentum has cooled significantly in 2026 as sentiment soured after the Iran conflict began.
Modi’s appeal, however, faces significant cultural headwinds. Gold is central to Indian cultural and religious life, viewed as a vital savings tool and an auspicious element of weddings and festivals. This deep-rooted tradition may limit the practical impact of the prime minister’s call, creating continued uncertainty for one of the world's largest gold markets.
This article is for informational purposes only and does not constitute investment advice.
