India’s macro signals are converging around a single theme of external caution as policy messaging, gold import trends, currency management and banking behaviour collectively point to an economy adjusting to geopolitical stress and rising import vulnerability. Earlier, PM Modi urged Indians to avoid hosting “destination weddings” overseas and instead choose locations within the country, arguing that such spending adds pressure on foreign exchange reserves.
Addressing an event in Gujarat, Modi said overseas holidays and weddings had become increasingly common among affluent Indians, leading to significant outflows of foreign currency. He suggested that domestic destinations, including the Statue of Unity, could serve as meaningful alternatives for wedding celebrations and said couples could receive the “blessings” of Sardar Vallabhbhai Patel there.
A note by Modi, analysed by Rubix Data Sciences, interprets the Prime Minister’s recent public appeal to reduce fuel consumption, avoid non-essential foreign travel, moderate gold purchases and cut reliance on imported commodities as a direct response to mounting external sector pressure amid the US-Iran conflict.
Critical imports, crude oil, gold, edible oils and fertilisers, rose to over USD 240 billion in FY26 from USD 222 billion in FY25, accounting for about 31 per cent of India’s total imports. With crude prices above USD 100 per barrel and oil import dependence at 88 per cent, the import bill has surged even as forex reserves declined from USD 728 billion on 27 February to USD 690.7 billion by 1 May, a fall of over 5 per cent in two months.
Rubix said the central message was aimed at lowering discretionary demand in import-intensive categories to conserve dollar outflows, stabilise the rupee and reduce pressure on external balances during a period of global stress. Gold imports alone touched about USD 72 billion in FY26, up 24 per cent year-on-year, compounding the oil shock and raising current account risks, with the IMF projecting India’s CAD at USD 84.5 billion, or nearly 2 per cent of GDP, in 2026.
SBI Links Gold Duty Hike To Import And CAD Dynamics
A separate note by State Bank of India Research observed that gold import trends have diverged sharply between value and volume. While the value of gold imports jumped from USD 57.9 billion in FY25 to USD 72.4 billion in FY26, volumes have declined for two consecutive years, falling about 5 per cent in both FY25 and FY26, indicating that price effects, not quantity, are driving the import bill.
SBI noted that gold’s impact on the current account deficit has varied historically and is not the sole driver of CAD stress, though projections based on recent trends show a rising weighted contribution. It also underlined that 38 per cent of gold imports are re-exported as jewellery, partially offsetting domestic consumption concerns.
Importantly, the report linked the Prime Minister’s appeal to reduce fuel usage with a 4.6 per cent year-on-year fall in oil consumption in April 2026, suggesting early behavioural response to policy messaging.
On the recent decision to raise customs duty on gold to 15 per cent from 6 per cent, SBI cautioned that such hikes historically widen the offshore-onshore price spread, incentivising grey channel imports and leading to higher seizures by the Directorate of Revenue Intelligence. Given already declining volumes, the bank expects further downward adjustment in gold import quantities, though the extent remains uncertain.
CareEdge Flags Structural Shift In Gold Consumption
Analysis by CareEdge Ratings places the gold story in a broader behavioural and financial context. It highlighted a structural shift in gold consumption patterns in India and globally.
Jewellery’s share in India’s total gold consumption fell below 60 per cent in CY25 from a long-term average of about 70 per cent, while investment demand — through ETFs, bars and coins — surged, pushing investment share above 40 per cent. Globally, jewellery’s share fell to about 33 per cent as consumers responded to high prices by cutting discretionary purchases.
Despite record prices, domestic jewellery purchases in value terms rose about 10 per cent year-on-year to Rs 4.8 lakh crore in CY25, even as volumes declined 15 per cent, indicating price sensitivity and a shift to lighter and lower-carat designs.
CareEdge said geopolitical uncertainty, central bank gold accumulation and portfolio diversification are supporting a durable high-price regime for gold, reinforcing safe-haven behaviour that aligns with Rubix’s observation of rising gold demand during uncertainty.
CareEdge also pointed to a sharp rise in gold-loan securitisation, with volumes rising to Rs 18,500 crore in H2FY26 from Rs 5,000 crore in FY25. This suggests that gold is increasingly entering formal financial channels as collateral, rather than remaining only a consumption asset.
At the same time, the retail securitisation market saw its first post-pandemic dip, falling 6 per cent to Rs 2.53 trillion in FY26, though activity improved in the fourth quarter driven by priority sector lending requirements and investor appetite for gold-backed and microfinance assets.
The ratings agency noted that banks’ asset quality remains strong, with gross NPAs at around 1.9 per cent and net NPAs at a historic low of 0.41 per cent by December 2025. However, it warned that geopolitical tensions could affect MSMEs through input cost volatility and trade disruption, while unsecured retail segments may see rising stress.
This stable banking backdrop suggests that while external pressures are rising, domestic financial system resilience is intact, allowing credit channels to absorb behavioural and consumption shifts linked to gold and imports.
Forex Stress And RBI Intervention Underline Caution
CareEdge’s macro assessment showed that the rupee has been under sustained pressure not just due to the conflict but also due to weak capital flows over the past year. Forex reserves have declined by about USD 33 billion since the conflict began, with the Reserve Bank of India intervening actively in spot and forward markets.
After adjusting for gold holdings, SDRs and forward positions, usable reserves are significantly lower than headline figures, reinforcing the need for prudent reserve management. The RBI’s net short forward position has crossed USD 100 billion, exceeding previous peaks.
CareEdge expects the CAD to widen to 2.1 per cent of GDP in FY27 if oil averages USD 90 per barrel, though it considers this manageable compared with past stress periods due to strong services exports. It also expects capex growth by states to moderate to 8–10 per cent in FY27 from 17 per cent in FY26 due to tighter fiscal headroom and softer consumption trends affecting tax buoyancy.
Taken together, the three reports show a clear chain: geopolitical conflict raises oil and gold prices, worsening import pressures; policy messaging seeks to influence household and corporate behaviour; gold duty hikes attempt to curb import intensity; consumers shift from jewellery to investment gold; gold increasingly moves into formal finance; banks remain stable but cautious; and the RBI manages currency volatility amid weaker capital flows.
Rather than viewing gold imports, fuel savings, banking data and forex management in isolation, the reports suggest India is undergoing a behavioural macro adjustment where household choices, policy signals and financial system responses are increasingly intertwined with external sector management. |
