Prime Minister Narendra Modi recently appealed to citizens to adopt austerity measures by reducing non-essential expenditure on imported goods such as gold and petroleum products and by limiting discretionary foreign travel. The appeal comes at a time when India’s external sector is facing increasing stress due to rising geopolitical tensions in West Asia, surging crude oil prices, growing gold imports, and significant foreign exchange outflows.
The call reflects broader concerns regarding India’s macroeconomic stability, particularly the pressure on foreign exchange reserves, the widening current account deficit (CAD), and depreciation of the rupee.
External Sector Stress and Declining Forex Reserves
Foreign exchange reserves are assets held by the Reserve Bank of India (RBI) in foreign currencies, gold reserves, Special Drawing Rights (SDRs), and reserve positions with the International Monetary Fund (IMF). These reserves play a critical role in maintaining currency stability, financing imports, and protecting the economy during external shocks.
India’s forex reserves reportedly declined to nearly $691 billion, following a fall of almost $38 billion within two months after the escalation of the West Asia conflict. Simultaneously, the rupee weakened beyond the ₹95 per US dollar mark, raising concerns about exchange rate stability.
Several factors have contributed to this decline:
- Rising crude oil import bills
- Increasing gold imports
- Large outward remittances under the Liberalised Remittance Scheme (LRS)
- Foreign Institutional Investor (FII) outflows
- Global geopolitical uncertainty
Between January and May 2026, FIIs reportedly withdrew around ₹1.97 lakh crore from Indian financial markets, thereby increasing pressure on both the rupee and foreign exchange reserves.
Gold Imports and the Current Account Deficit
Gold imports have emerged as one of the biggest contributors to India’s external sector imbalance. India’s gold import bill increased sharply from nearly $35 billion in 2022-23 to around $72 billion in 2025-26.
India is the world’s second-largest consumer of gold after China. Domestic demand is largely driven by jewellery consumption, cultural traditions, weddings, and investment preferences. However, since most gold is imported, rising demand directly increases the import bill and widens the current account deficit.
The Current Account Deficit (CAD) represents the gap between a country’s imports and exports of goods and services. According to RBI data, India’s CAD widened to $13.2 billion, equivalent to 1.3% of GDP, during the December quarter of 2025.
Switzerland accounted for nearly 40% of India’s gold imports, followed by the UAE and South Africa. Heavy dependence on imported gold drains valuable foreign exchange reserves and increases vulnerability during periods of global uncertainty.
Gold Monetisation Scheme: A Possible Solution
To reduce dependence on imported gold, experts have recommended strengthening the Gold Monetisation Scheme (GMS). The scheme aims to mobilise idle household gold and integrate it into the formal economy.
India is estimated to possess thousands of tonnes of unused gold stored in homes and lockers. Under the scheme:
- Individuals can deposit idle gold with banks
- Banks can utilise the gold for productive purposes
- Dependence on fresh imports can decline
- Pressure on the CAD and forex reserves can reduce
Effective implementation of the scheme could help conserve foreign exchange while promoting financial stability.
Liberalised Remittance Scheme and Foreign Travel
Another significant source of forex outflow is outward remittances under the Liberalised Remittance Scheme (LRS). Introduced by the RBI, LRS allows resident individuals to remit money abroad for education, medical treatment, investment, gifts, and travel.
According to reports, outward remittances under LRS reached nearly $29.56 billion in FY25, with foreign travel accounting for more than half the total outflow.
Prime Minister Modi specifically highlighted:
- Overseas tourism
- Destination weddings abroad
- Luxury foreign travel
- Discretionary overseas expenditure
He urged citizens to postpone avoidable foreign travel for at least one year and instead prioritise domestic tourism and locally manufactured products.
The concern becomes more serious because India recorded nearly 32.71 million outbound travellers in 2025, while foreign tourist arrivals stood at only 9.02 million. Moreover, foreign exchange earnings from tourism reportedly declined by 6.6% during the year.
This imbalance reduces India’s net foreign exchange earnings and weakens the tourism sector’s contribution to GDP and employment generation.
Crude Oil Dependence and Inflationary Risks
India imports more than 85% of its crude oil requirements, making the economy highly sensitive to global oil price fluctuations.
The ongoing geopolitical tensions in West Asia and uncertainty surrounding the Strait of Hormuz have pushed crude oil prices above $100 per barrel. Higher crude prices have multiple economic consequences:
- Rising fuel prices
- Increased transportation costs
- Imported inflation
- Widening current account deficit
- Fiscal pressure on oil marketing companies
State-owned oil companies such as Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum are reportedly facing under-recoveries because retail fuel prices do not fully reflect rising import costs.
To reduce fuel dependence, the Prime Minister encouraged:
- Adoption of electric vehicles (EVs)
- Greater use of public transportation
- Carpooling
- Work-from-home arrangements wherever feasible
These measures align with India’s broader energy transition and sustainability goals.
Conclusion
Prime Minister Modi’s austerity appeal reflects growing concerns regarding India’s external sector vulnerabilities amid rising imports, declining forex reserves, global geopolitical tensions, and capital outflows.
Gold imports, foreign travel expenditure, and crude oil dependence have collectively intensified pressure on the current account deficit and currency stability. While India remains one of the world’s fastest-growing major economies, maintaining macroeconomic stability will require prudent consumption patterns, energy diversification, stronger domestic production, and financial discipline.
In the long term, reducing import dependence, strengthening domestic manufacturing, promoting sustainable energy, and encouraging responsible consumption will be essential for safeguarding India’s economic resilience and external sector stability.