Aapne, sabse pehle, ghabrana nahi hai – Imran Khan Niazi

The obsession of Indian households with owning gold is best explained by the first line of a song from the 1997 Govinda superhit Hero No. 1, which goes something like this: “Sona kita sona hai”.

Of course, this is a rather laboured joke – playing on different meanings of the word sona – and which, if you start getting into the nitty gritty, doesn’t quite work.

But beyond this wordplay and trying to be funny in what should be a very serious column, it is safe to say that India remains obsessed with owning gold. A 2023 estimate made by the World Gold Council – a lobby of gold mining companies – puts the gold owned by Indian households at 25,000 tonnes.

This estimate was made about three years ago. So, it is only fair to say that household gold ownership would have increased since then. The point is that Indians own a lot of gold and continue to obsess over buying more.

In this environment, comes Prime Minister Narendra Modi’s statement: “For a year, be it any function, we shouldn’t buy gold jewellery.” Along with this, PM Modi also appealed to people to cut back on overseas travel and international destination weddings, and to increasingly use metro, public transport, and carpooling.

But it’s PM Modi’s point about gold that seems to have caught the nation's attention. Indeed, this statement about gold tells us a lot about how the Indian economy is structured and how that structure is being tested due to the war in West Asia.

India’s continued love for gold

India imports almost all the gold that it consumes. These imports are paid for in dollars. In 2025-26, the country imported gold worth $72 billion. This was 58 percent higher than $45.5 billion in 2023-24.

Of course, the higher gold import bill was also a function of its rising price. In 2025-26, India imported 721 tonnes, compared with 795 tonnes in 2023-24.

Now, there are good reasons for households to buy gold at the individual micro level. But the same logic doesn’t seem to hold when these household purchases are added up at the macro level.

At the macro level, household purchases of gold are often seen as economically ‘useless’, given that gold is too expensive for significant industrial use and that precious dollars are spent importing it.

This highlights a classic behavioural conflict: while the macro-economy views gold as a 'useless' drain on dollars, for the individual, it is a perfectly rational hedge. As the rupee depreciates, buying gold isn't just an 'obsession' – it’s also a defensive manoeuvre to protect one’s purchasing power.

In normal times, this gold obsession doesn’t matter much. In a manner of speaking, the country can afford it. But the current time isn’t normal. The war in West Asia, along with other reasons, has changed things. There is significant pressure on the rupee against the dollar, with the Indian currency depreciating by over 5 percent from late February onward.

How does gold fit in here?

Gold is bought by spending dollars. The same is true when Indians go on holiday abroad or have international destination weddings. This creates demand for dollars in an environment where their supply remains rather iffy.

Why is that the case? Foreign institutional investors (FIIs) have been selling out Indian stocks. When they sell, they get paid in rupees. They convert these rupees into dollars to take money out of India. This creates a demand for dollars.

In 2025-26, they net sold stocks worth Rs 1.81 lakh crore ($19.7 billion). In 2026-27, they have already net sold stocks worth Rs 84,282 crore ($8.9 billion). So, FIIs have been taking dollars out of India.

Over and above this, the net foreign direct investment (FDI) into India (FDI by foreigners into India minus FDI by Indians overseas) hasn’t been inspiring either.

From April 2025 to February 2026, in the last financial year, the figure stood at $6.3 billion. It was at $959 million in 2024-25. It was close to $43 billion in 2019-20 and $44 billion in 2020-21. Clearly, as many dollars aren’t coming in through this route as was the case in the past.

Further, in the aftermath of the war in West Asia, remittances from the region are likely to be negatively affected. Of course, the dollars earned by Indian IT companies and other service-based companies help, but the sales growth of IT companies has been tepid of late.

The rising prices of oil and natural gas, which are paid for primarily in dollars, also create a higher demand for dollars. The price of the Indian basket of crude oil has jumped 58 percent from $69 per barrel in February 2026 to around $109 per barrel as of May 12, 2026.

In 2025-26, India imported 89 percent of the crude oil it consumed and nearly half of natural gas. These import levels cannot differ by much in 2026-27. So, with higher prices, dollar outflows to buy oil and gas will only go up.

Put simply, in 2026-27, India’s current account deficit – the gap between the dollars flowing out of the country and the dollars flowing in – is likely to widen sharply. In this scenario, when the demand for dollars is more than their supply, their price in rupee terms increases, which means that the rupee depreciates: it loses value against the dollar. India then needs more rupees to buy dollars. This has all kinds of impacts.

Control the controllable

First, in an environment where households buying gold isn’t appreciated at the macro level, and there is a need to preserve foreign exchange (read US dollars), the purchase of gold needs to be discouraged. Which is precisely why PM Modi said what he did, waiting for the state assembly elections to get over. The customs duty on gold has also been increased. This has pushed up prices, and the hope is that that will deter people from buying gold and help preserve foreign exchange.