Why Modi wants Indians to buy less gold and take fewer foreign holidays

An important development from the financial markets: Why Modi wants Indians to buy less gold and take fewer foreign holidays3 hours ago Share Save Add as preferred on GoogleSoutik Biswas and Nikhil InamdarNurPhoto via Getty ImagesIndia imports roughly 90% of its crude oil and half its gas needsAs the war in Iran drags into its third month with no clear end in sight, Prime Minister Narendra Modi is asking Indians to tighten their belts in ways not seen since the pandemic. Work from home if possible, he urged. Avoid unnecessary foreign travel.

The appeal, delivered at a public event in Hyderabad on Sunday, carried echoes of the Covid years, when the prime minister relied on symbolic mass participation to rally the country around a national cause. This time, the collective mission is economic survival: save dollars. Unsurprisingly, the message sent a wave of panic across India's financial markets.

Economic Details

"My view is we should prepare for paranoia before the event," Uday Kotak, a veteran Indian banker, told a gathering of industry leaders this week, adding, "We must prepare for the worst. ""We have not seen the impact in the last two months of the Middle East war in terms of energy price transmission… It's coming and its coming big and consumers have not felt the pressure at all," Kotak said. India's vulnerability is straightforward.

The country imports roughly 90% of its crude oil and half its gas needs. With the Strait of Hormuz - the narrow Gulf chokepoint through which much of the world's oil flows - shut for more than two months amid the war, India's import bill has ballooned by billions of dollars. Air fares have surged as airlines pass on fuel costs.

Overseas holidays are becoming more expensive. Gold imports, a chronic drain on foreign exchange, have become a fresh target, with the government sharply raising import duties on gold and silver to 15%. "What was initially seen as a temporary shock could now turn into a prolonged crisis.

Analyst Views

If that happens, India could be among the worst-affected economies," says Rajeswari Sengupta, an associate professor of economics at Mumbai-based Indira Gandhi Institute of Development Research. Getty ImagesNarendra Modi is asking Indians to tighten their belts in ways not seen since the pandemicBehind Modi's unusually direct appeal lies a deeper anxiety in Delhi: not that India is running out of dollars, as it did during the balance-of-payments crisis of 1991, but that demand for dollars is beginning to outstrip supply at an uncomfortable pace. Back then, India had barely enough reserves to cover three weeks of imports.

Today, it has around $690bn (£510bn) in reserves - among the world's biggest and enough to finance India's goods imports for 11 months. There is no imminent risk of default. But the pressures are real nonetheless.

Oil, gas, fertiliser and gold imports are pushing up demand for dollars just as foreign investment inflows weaken, exports slow down and geopolitical uncertainty rattles markets.

Financial markets are tracking the development closely as investors assess the likely impact.