PM Modi's Austerity Call - Forex Reserves, Gold Imports, and Eco…

PM Modi's Austerity Call - Forex Reserves, Gold Imports, and Economic Pressures

May 12, 2026

Why in the News?

Prime Minister Narendra Modi has called on citizens to adopt austerity measures, urging them to cut back on gold purchases, foreign travel, and petroleum consumption.

What’s in Today’s Article?

PM’s Austerity Call (Introduction, Foreign Exchange Reserves, Rising Gold Imports, Remittance Scheme, Crude Oil Imports, Tourism, etc.)

Introduction

India’s external sector has come under significant stress amid rising geopolitical tensions in West Asia, surging crude oil prices, increasing gold imports, and high outward remittances for overseas travel.
In this backdrop, Prime Minister Narendra Modi recently appealed to citizens to adopt austerity measures by reducing non-essential spending on imported goods such as gold and petroleum products and avoiding discretionary foreign travel.
The government’s concern stems from a sharp decline in India’s foreign exchange reserves, which reportedly fell by nearly $38 billion within two months following the escalation of the West Asia conflict.
The pressure on reserves has also been aggravated by rising imports and sustained capital outflows from foreign institutional investors (FIIs).

India’s Foreign Exchange Reserves and External Sector Pressure

Foreign exchange reserves are assets held by the Reserve Bank of India in foreign currencies, gold reserves, Special Drawing Rights (SDRs), and reserve positions with the International Monetary Fund (IMF).
These reserves help maintain currency stability, support imports, and cushion the economy during external shocks.
India’s forex reserves reportedly declined to nearly $691 billion amid rising import bills and capital outflows.
The depreciation of the rupee, which crossed the 95 mark against the US dollar, further intensified concerns regarding external sector stability.
The decline has largely been attributed to:

Between January and May 2026, FIIs reportedly withdrew around Rs. 1.97 lakh crore from Indian markets, putting additional pressure on the rupee and forex reserves.

Rising Gold Imports and Current Account Concerns

Gold imports have emerged as a major contributor to India’s external sector stress. India’s gold import bill rose sharply to nearly $72 billion in 2025-26, almost doubling compared to $35 billion in 2022-23.
India is the world’s second-largest consumer of gold after China, with domestic demand largely driven by jewellery consumption, cultural preferences, and investment demand.
However, heavy dependence on imported gold increases the current account deficit (CAD), which represents the gap between imports and exports of goods and services.
According to RBI data cited in the report, India’s CAD widened to $13.2 billion, equivalent to 1.3% of GDP, during the December quarter of 2025.
Switzerland remained the largest source of India’s gold imports, accounting for around 40% of total imports, followed by the UAE and South Africa.

Gold Monetisation Scheme and Policy Suggestions

Industry experts have suggested strengthening the Gold Monetisation Scheme (GMS) to reduce dependence on imported gold. The scheme aims to mobilise idle household gold and channel it into the formal economy.
India is estimated to possess thousands of tonnes of unused household gold stored in lockers and homes. Through the Gold Monetisation Scheme:

Experts argue that efficient utilisation of existing domestic gold reserves can help conserve valuable foreign exchange while supporting financial stability.

Liberalised Remittance Scheme and Overseas Spending

Another major source of forex outflow has been spending under the Liberalised Remittance Scheme (LRS).
The RBI introduced LRS to allow resident individuals to remit money abroad for permissible transactions such as education, medical treatment, investment, and travel.
According to the report, outward remittances under LRS stood at nearly $29.56 billion in FY25, with foreign travel accounting for more than half of the total outflow.
Prime Minister Modi specifically highlighted:

He urged citizens to postpone avoidable foreign travel for at least one year and prioritise domestic tourism and locally manufactured products.

Crude Oil Prices and Inflationary Risks

India imports over 85% of its crude oil requirements, making it highly vulnerable to fluctuations in global oil prices.
The ongoing tensions in West Asia and uncertainty around the Strait of Hormuz have pushed crude oil prices above $100 per barrel.
Higher crude prices can lead to:

State-owned oil companies such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum are reportedly facing significant under-recoveries due to the difference between retail fuel prices and import costs.
To reduce fuel dependence, the Prime Minister encouraged:

Tourism Trends and Foreign Exchange Dynamics

There is a widening imbalance between outbound and inbound tourism.
India witnessed a record 32.71 million outbound travellers in 2025, while foreign tourist arrivals remained comparatively lower at 9.02 million.
Foreign exchange earnings from tourism also reportedly declined by 6.6% during the year.
Since tourism contributes significantly to employment and GDP generation, weaker inbound tourism further affects foreign exchange earnings.

Conclusion

Prime Minister Modi’s austerity appeal reflects growing concerns over India’s external sector vulnerabilities amid rising imports, declining forex reserves, global geopolitical tensions, and capital outflows.
Gold imports, overseas travel expenditure, and crude oil dependence have collectively intensified pressure on India’s current account and currency stability.
While India continues to remain one of the world’s fastest-growing major economies, managing external sector risks through prudent consumption, domestic production, energy transition, and financial discipline will remain critical in maintaining macroeconomic stability in the coming years.