Can Indians Give up Gold Buying, As Urged by PM Modi? | Vantage on Firstpost | 4K

Added: 2026-05-19

[00:00:00]In India, there are three things families will never agree on. Which cricket captain was the greatest? Which city makes the best biryani? And whether gold prices are still reasonable.

[00:00:11]Because for Indians, gold is not just a metal. So when Prime Minister Narendra Modi asked Indians to stop buying gold for a year, what people heard were more than just an economic suggestion.

[00:00:26]Now here's the thing about India and gold. It is not just an investment. It is tradition. It has cultural currency. Think about it. A baby is born, there's gold. A festival arrives, there's gold at the center of it. A wedding, gold again. Now it's important to mention that Prime Minister Modi only advised against discretionary gold buying. Meaning buy it only if you really need it. So a wedding may fall in that category. In India, 10 million weddings happen in every year. And guess what lights up the occasion? Gold, of course. Cultural affinity, tradition, and festive gifting are the core drivers of Indian gold demand. That's a very academic way of saying Indians are obsessed with it. For generations, Indians didn't trust banks. They didn't trust the stock market. They watched inflation quietly eat away their savings.

[00:01:18]So what did they do? They converted their earnings into something the government cannot print, something tangible, something real, something that survives bank runs amid fears of insolveny, political chaos, and economic earthquakes. Gold. Look at the numbers.

[00:01:36]India accounts for 700 to 800 tons of gold every year. We are the second largest consumer on the planet after China, making up roughly 25% of the global demand. And although jewelry demand dropped in the first quarter of this year, Indians did not stop buying the precious metal. Instead, they started opting for lighter, lower carat options. But here's the problem. We produce barely one to two tons domestically. So where does the rest come from?

[00:02:04]Imports. And imports means spending dollars. This is where the forex reserves come into play. Think of it like a huge wallet that the government keeps. It includes money in the form of other currencies like the dollar. When we import items from abroad, the government uses these reserves to pay for them. So when we import gold, we pay pay for it using the dollars kept in the reserves.

[00:02:29]India's gold imports hit record highs last financial year. There was a 24% increase from the previous year. If the bill is higher, more dollars go out, putting a dent in our forex reserves and widening the current account deficit.

[00:02:46]The current account deficit, this is the gap between what India earns from the world and what it spends. And if the current account deficit widens, it means one thing. There is more demand for foreign currency. In this case, it is the dollar. When dollar's demand rises, rupee falls. As we are seeing now, the currency touched a record low today.

[00:03:07]Rupee pressure means inflation and inflation typically results in Indians buying more gold because it is a safe haven asset. So this is a loop and that's exactly why Prime Minister Modi made his appeal. India's import bill is swelling. Oil is expensive. The dollar is strong. The current account deficit is under stress and gold is a massive part of that stress. India has been here before. Back in 2013, when the current account deficit hit a crisis point, the government introduced something called the 80/20 rule, every importer had to reexport 20% of every gold shipment. Meaning, if a company imported 100 kg of gold, it could only sell 80 kg inside India and the remaining 20 kg had to be exported again. Basically, India made jewelry out of the gold it imported and it earned some greenbacks when it reexported gold.

[00:04:06]So, did official imports fall in 2013?

[00:04:09]Yes. Did demand fall? Absolutely not.

[00:04:12]Smuggling networks appeared almost overnight. Gold started coming in through Nepal, Myanmar, Sri Lanka. The government eventually scrapped the rule in 2014. Because here's the brutal truth. The underlying reasons why Indians buy gold, inflation protection, wealth preservation, inheritance planning, those reasons do not respond to government policy. You cannot legislate away centuries of instinct and tradition. But economists say if Indians stopped buying gold for just one year, the current account deficit would narrow sharply. The rupee would strengthen, inflation would ease. And some Indians are indeed following that playbook.

[00:04:53]The share of physical assets in household savings have now dropped by around 38 to 40%. SIP or systematic investment plan inflows into mutual funds crossed 26,000 cr rupees or around $3.1 billion per month in early 2025.

[00:05:09]DMAT accounts which hold financial securities like stocks, bonds and mutual funds crossed 18 cr that's 180 million.

[00:05:18]Jewelers have a different take on this matter. They say if there's a sudden negative shift in sentiment, it will impact footfall in stores and hit the incomes of small jewelers. They have some suggestions like instead of urging Indians to stop buying gold, how about we make better use of the metal already lying inside Indian homes. They're calling for gold mobilization and recycling framework. You see, most of our gold sits in homes or bank lockers.

[00:05:46]Gold mobilization means bringing that unused gold back into the financial system.

[00:05:52]How would you do that? Well, people deposit old gold with banks. Jewelers buy and melt old jewelry. The gold is purified and reused for new jewelry or investment products. This reduces the need to import fresh gold. They're also urging the government to allow gold exchange traded funds or ETFs to lend 20 to 30% of their physical holdings. Gold ETFs are funds that hold real gold on behalf of investors. But the real challenge is not convincing Indians.

[00:06:22]It's not that you need to convince them to stop buying gold.

[00:06:27]The real challenge is giving Indians something they trust more than the precious metal.

[00:06:33]This is more than just a gold problem.

[00:06:35]This is a trust problem. And until India solves the trust deficit with other investment options, the cupboard in most homes stays locked. So does the gold.

[00:06:48]>> The countdown begins to the Trump she summit amid the war in West Asia. The world's two largest economies at odds for years. Trillions in trade tangled in tariffs.

[00:07:04]A global power contest over technology and Taiwan.

[00:07:09]The agenda is long. The trust is thin.

[00:07:12]the world will be watching and what's at stake for India. The news, the nuance, the analysis, all on First Post.

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[00:07:55]This is hima for first post Vantage.