India is weighing emergency measures to defend its foreign exchange reserves in response to rising oil prices, which have widened the country's current account deficit [1]. The Reserve Bank of India (RBI) has already intervened to stabilize the Indian Rupee (INR) after it hit a record low, with foreign exchange reserves standing at $690.7 billion as of May 1 [1]. Proposed government actions include hiking fuel prices for the first time since the Iran conflict began, restricting imports of non-essential goods such as gold and electronics, and tightening currency hedging rules for importers [1].
Prime Minister Narendra Modi has publicly urged citizens to avoid gold purchases for at least a year and to limit overseas travel, aiming to preserve foreign exchange reserves [1][2]. This call has raised concerns within India's jewellery industry, which fears a further setback in gold jewellery demand—a sector that is crucial for the physical gold market [2]. According to Commerzbank strategists, Indian gold jewellery demand in the first quarter was almost 20% below the previous year's level by tonnage, although the value of gold purchases reached a record high for a first quarter due to elevated prices [2].
Commerzbank notes that if Modi's appeal to refrain from gold purchases is ineffective, the government may consider raising import duties on gold [2]. Meanwhile, despite the recovery in oil prices, gold has managed to retain most of its recent gains [2].
The policy toolkit under discussion also includes encouraging public fuel conservation and restricting non-essential imports, with the government signaling a willingness to take further steps if necessary to stabilize the rupee and protect reserves [1].
CONCLUSION
India is actively considering a range of emergency measures to defend its currency and foreign exchange reserves in the face of rising oil prices, including a public appeal to curb gold purchases. The government's actions and potential for further import restrictions or duty hikes signal significant implications for both the rupee and the global gold market.