Prime Minister's Stance on Gold Purchases and Its Economic Impact Prime Minister Narendra Modi has advised citizens to avoid buying gold for another year, citing the ongoing Middle East conflict and its indirect impact on India’s economy. The war has disrupted shipping routes, particularly the Strait of Hormuz, which is critical for transporting fuel, fertiliser, and other essential goods. This disruption has led to rising costs for these commodities, which in turn affect food prices. Modi’s directive aims to reduce the financial burden on households while encouraging measures to mitigate inflationary pressures. The Prime Minister’s argument centers on the role of gold imports in straining India’s foreign exchange reserves. Nearly 90% of the gold purchased in India is imported, with the government spending significant foreign exchange to meet domestic demand. This reliance on imports exacerbates the current account deficit, which widened to $13.2 billion in Q3 FY26, or 1.3% of GDP. Gold imports alone account for about 2.1% of India’s nominal GDP in the merchandise trade deficit. Modi’s call to cut gold purchases is framed as a way to ease this pressure and redirect resources toward more productive sectors. The economic impact of gold buying is multifaceted. When consumers purchase gold, most of the money leaves the country as foreign exchange used to import raw gold. The government earns only a small portion of the final price through import duties and GST, while the majority of the value is lost to overseas markets. For example, a 10-gram gold chain costs the buyer around 84% gold value, with the government capturing just 7% in taxes. The remaining 12% is split between craftsmen and jewellers, contributing minimally to India’s GDP.#strait_of_hormuz #reserve_bank_of_india #prime_minister_narendra_modis #sovereign_gold_bonds #tirumala_tirupati_venkateswara_temple
