'Oil Is Not The Problem. The Bigger Problem Is Gold'

'Every year we import approximately $70 billion worth of gold -- closer to $72 billion in 2025-2026, an all-time record.'
'There is no parallel for this anywhere in the world. And this love for gold will not disappear overnight.'

When Prime Minister Narendra Modi addressed a rally in Secunderabad on May 10, his message struck an unusually cautionary note. He urged Indians to defer gold purchases for a year, reduce foreign travel, and conserve fuel -- seven specific appeals that sounded less like routine political rhetoric and more like a warning about gathering economic strain.

The backdrop was impossible to ignore. Since the US and Israel launched Operation Epic Fury against Iran on February 27, tensions in West Asia have sharply escalated, with the Strait of Hormuz -- the artery for nearly a fifth of the world's seaborne oil trade -- effectively under blockade.

In just over two months, India's foreign exchange reserves have reportedly fallen by nearly $38 billion from their early March peak of around $709 billion. The rupee has slid to a record low of 95.63 against the dollar, while gold imports -- already touching a staggering $72 billion in 2025-2026 -- continue to exert intense pressure on the country's forex position.

At the centre of this debate is Dr Ashwani Mahajan -- economist, Delhi University, national co-convenor of the Swadeshi Jagran Manch and long-time advocate of economic self-reliance.

In a press statement issued on May 10, the Swadeshi Jagran Manch backed Modi's appeal to cut fuel use, foreign travel and imports, calling it a push towards Swadeshi and self-reliance. The SJM said reducing dependence on imported oil and promoting renewable energy, EVs and domestic clean-tech manufacturing would strengthen India's economy and foreign exchange reserves.

On cue, Modi has reduced his convoy size and promoted the use of electric vehicles, demonstrating a commitment to austerity and sustainable practices following his public appeal to reduce fuel consumption.

In this two-part interview with Prasanna D Zore/Rediff, conducted late on the night of May 12, Dr Mahajan speaks about the Gulf war, the surge in gold imports, foreign portfolio outflows, and why he believes foreign direct investment may be worsening -- rather than easing -- India's foreign exchange pressures.

'There is a clear warning in what the prime minister said'

Prime Minister Narendra Modi's appeal to cut foreign travel, fuel consumption, and gold purchases sounded unusually cautionary.
Is the government indirectly signalling that the economy is entering a period of serious stress? Do you foresee a real economic shock if the war in the Gulf continues?

These measures are pre-emptive. During wars we have seen massive hikes in oil prices, withdrawal by foreign portfolio investors, disruption of global value chains -- all of which start feeding into the domestic economy through rising prices, pressure on industrial production, and a squeeze on the metal markets.

In normal times -- business as usual -- we were able to absorb the outflow of foreign exchange. Gold imports, modest shocks in oil prices, money being sent abroad as remittances, Indians travelling overseas -- all of that was manageable.

But now, with the war situation, , and oil above $100 for over 45 days, a lot has changed.

Almost every major country is taking precautionary steps. Most have seen petrol and diesel prices rise. The government has so far chosen to absorb that pressure -- through the oil marketing companies, through reduced taxes -- and not pass it on to consumers.

The very fact that the government has been able to absorb it and not pass it on shows our economy is resilient. But there is a clear warning in what the prime minister said. That warning was there.

What does the data tell us about how much pressure is already building?

In just under 70 days -- from February 27 to May 11 -- India's foreign exchange reserves have come down by $38 billion. That is not a small number. And during this period, a great deal of money has also been taken away by foreign portfolio investors. The result is pressure on the rupee.

Now, there is a narrative that foreign portfolio investors are 'leaving India'. That is not quite the right framing. Let me explain it differently -- and I do not think anyone has put it to you quite this way.

According to my estimates, and those of colleagues in the economics community, foreign portfolio investors had, over the years, been earning returns of around 42% from Indian markets.

The sufferers were ordinary Indian people -- F&O traders, small retail investors.

What has changed recently is that regulators have cracked down on the kind of market manipulation -- pushing prices up or down (by these FPIs and FIIs who use high frequency trading algos to make huge profits at the expense of India's traders in futures & options segments or derivatives) -- that allowed FPIs to generate those outsized profits.

Now, whenever they exit, the gap is filled by Indian domestic investors (SIP investors in MFs). The upheavals are smaller. But because their (of FIIs and FPIs) profits have come down sharply, they no longer find the Indian market as attractive.

They are selling and going out -- not because India is weak, but because the easy money is gone.

'Sometimes, by making an appeal, the government also sends a signal -- enough is enough'

Could importing more Russian oil cushion India from the oil shock? India has reportedly declined Russian LNG because of US sanctions...

India is not under any curb when it comes to buying Russian oil (or gas). We have been doing that. But it is not that simple -- Russia is now also charging higher prices. And oil, frankly, is only the tip of the iceberg.

The bigger problem is gold. Every year we import approximately $70 billion worth of gold -- closer to $72 billion in 2025-2026, an all-time record. There is no parallel for this anywhere in the world. And this love for gold will not disappear overnight.

But the prime minister's appeal is not merely a request to citizens. It is a warning signal to those who have been purchasing gold in bulk -- not for ornaments, but as a speculative instrument.

If you look at World Gold Council data, only a minuscule portion of the gold imported into India actually goes into making jewellery. The vast majority is bought in the form of bars and biscuits -- which have nothing to do with the ornaments industry.

So the narrative being created, that the jewellery trade and the small craftsmen will suffer if gold imports are curbed, is misleading. That business is a very small part of the total gold purchased.

So when the prime minister says stop buying gold, what is he really communicating?

Sometimes, by making an appeal, the government also sends a signal -- enough is enough. That is what I feel is happening here. And never before has any prime minister made such a strong appeal on this matter. This is historically unprecedentede.

The Prime Minister also spoke about cutting back on foreign travel. Is the Liberalised Remittance Scheme -- which allows Indians to send up to $250,000 abroad per financial year -- also a leakage point that should be addressed?

There have been some restrictions introduced in the last two years. Earlier, the limit was $1 million. There has been tightening. You may want to verify the exact current ceiling -- I would do the same.

But beyond LRS, there is something more significant happening. Indians are travelling more, spending more abroad. Earlier, we introduced tax collected at source for those buying foreign travel tickets, partly to track people using undisclosed income for overseas trips. That measure has started to yield results.

The broader picture is this: In 2025-26, India's trade deficit increased by $50 billion compared to the previous year. Yes, our services surplus also increased by $25 billion -- but that still leaves a net deficit of $25 billion. Add to this the outflow from foreign corporate (direct) investment and from FPIs, and the pressure compounds.

The rupee feels it. And it is not Modi's rupee -- it is India's rupee (which is under threat from these outflows). When it weakens, every Indian pays.

'He knows that when a leader makes a statement of this kind publicly, he must be seen to follow through'

Would you agree that people would respond more lovingly to PM Modi’s 7-point appeal if they saw the leadership doing it first -- walking the talk. Is it not fair to ask that of the prime minister?

PM does not spend a single penny from the public exchequer on his personal needs. Look at the data on how much he spends on travel and other things compared to his predecessors. Whatever gifts he receives -- he immediately auctions them and puts the proceeds into the government kitty. So he has already been leading by example. And I say this not because I belong to the RSS -- it is simply what the data shows.

But would it not help if the prime minister voluntarily put into the public domain the expenses incurred during his foreign tours?
There have been several RTI applications filed seeking disclosure of amounts spent on foreign visits -- and most of those RTIs have been rejected.
Foreign tours are important for national interest, for diplomacy, for security -- all of that is understood. But given that he is now asking citizens to sacrifice, should he not show the numbers first?

I do not think any RTI has been rejected on those grounds. If some have been rejected, it would be because the questions touched on matters related to the security of the country. That is a legitimate exemption.

But should the prime minister not voluntarily disclose -- without waiting for RTI applications -- that I visited six or seven countries, this is what it cost, this is how much of foreign exchange the country saved during these visits and these are the sacrifices I have personally made? And now I am asking you to do the same.
Would that not set a far more powerful example?

I do not think the prime minister needs to do that. Many details of his foreign tours are already in the public domain -- the itineraries, the outcomes, the broad nature of expenditure.

Where details are withheld, it is typically for security reasons. And whatever he does at home -- his official residence, his domestic expenditures -- all of that is already publicly available. Gone are the days when prime ministers made personal visits at public expense. He is already setting that example.

But what about the large convoys -- the motorcades that accompany him, which also consume enormous amounts of fuel? And there were reports of IAF aircraft being used during the Somnath temple ceremony. Given that he has just made an appeal to the nation to save fuel, does that not send a contradictory signal?

I understand the question. And honestly, you know, sometimes we also ask the government to correct certain things. But let me tell you what I genuinely believe: if he has said that we should reduce fuel consumption, you will -- in the coming days -- see a visible difference in government functioning as well.

He knows that when a leader makes a statement of this kind publicly, he must be seen to follow through. The prime minister is aware of this. And he has the credibility and the popular trust to carry it through. That trust has been earned over years -- it is not just a political figure's popularity. It is a global standing. He will walk the talk.

• PART 2: 'It's Not Modi's Rupee That Benefits. It's India's Rupee That Benefits'