Why the government wants Indians to pause gold buying?

India’s bond with gold has always been layered and complex. We revere it in temples, exchange it at weddings, pass it down through generations, pledge it in times of need, and quietly measure our sense of security against it. In households, gold is far more than an investment – it is prestige, security a memory and tradition fused into a single gleaming metal.

Prime Minister Narendra Modi’s recent appeal asking Indians to “pause” gold buying carried unusual significance. It was an economic caution delivered gently.

And now, that gentle caution has been followed by a policy signal.

Within days of the appeal, the government raised import duties on gold and silver to 15%, up from 6%, in one of the steepest hikes in recent years.

The Fiscal Math Behind the Duty Hike

To give some context – India imported ~721 tonnes of gold in FY26, worth nearly $72 billion – a sharp rise from the previous year (~ 800 tonnes at $58 billion). Oil imports, meanwhile, cost another ~ $135 billion. Together, oil and gold consumed more than $206 billion worth of foreign exchange in FY 26.

That is the number worrying policymakers.

Forex Reserves and the Iran-US Ripple Effect

What makes this moment different is the simultaneous pressure of elevated oil prices, geopolitical instability, and record-high gold prices arriving at the same time.

The immediate trigger is the Iran–US conflict, which disrupted trade through the Strait of Hormuz and pushed crude oil prices above $105 a barrel. At the same time, global uncertainty sent investors pouring into gold, driving prices in India to record highs of nearly ₹1.5 lakh per 10 grams.

For households, gold feels like financial security during uncertain times.

For the government, however, every gram imported means more dollars leaving the country when reserves are already under pressure. India’s forex reserves, which stood above $728 billion in February, slipped to around $691 billion by April,2026

As more dollars leave India to pay for gold and oil imports, pressure builds on the rupee itself – making other essential imports more expensive and complicating inflation management for policymakers.

Then there is the paradox of gold.

Globally, central banks themselves are buying gold aggressively as safeguard against uncertainty and overdependence on the dollar. But governments may discourage ordinary citizens from buying too much of it because household demand weakens reserves rather than strengthening them.

And India embodies this contradiction more than anywhere else.

Chart I: Central bank demand continues to gain share in total gold demand even if the overall pace of demand tapers.

To policymakers, gold is a fiscal challenge. To Indian families, it is emotional security.

A History of Resistance: 1967 to 2013

And history shows how difficult that relationship is to change.

In 1967, Indira Gandhi appealed to citizens to curb gold buying because imports were draining foreign exchange. Demand barely slowed. In 1991, India was forced to pledge 67 tonnes of gold abroad to avoid a balance-of-payments collapse – a moment that still looms large in policymakers’ memory. And in 2013, when the government sharply raised import duties to control a widening current account deficit – smuggling surged instead.

The Centre has learned that Indians may not stop buying gold simply because governments ask them to. That explains Modi’s softer approach followed the latest tariff increase announcement.

The government appears to have concluded that persuasion alone may not be enough. By raising import duties from 6% to 15%, Centre is trying to make gold materially more expensive in the hope of cooling demand before external pressures worsen further.

Officials likely understand the risks of overreaction. The jewellery industry employs millions, and excessively high duties have historically encouraged smuggling and grey-market activity. Authorities prioritized stabilizing foreign exchange reserves and managing import bill pressures, even if it meant tolerating short-term supply and price volatility risks.

The Organised Retail Edge

Ironically, the tariff hike could strengthen India’s large organized jewellery players even if overall demand weakens in the short term. As prices rise and physical gold -market activity increases, consumers may increasingly prefer hallmark-certified jewellery, transparent exchange policies, and trusted brands over informal channels.

Yet the broader economic logic behind the move is undeniable. Even a partial reduction in imports could save India tens of billions of dollars and ease pressure on the current account deficit.

The challenge is that gold demand in India is not driven purely by economics.

Weddings continue regardless of market cycles. Festivals continue regardless of inflation. During peak marriage season, India sees tens of thousands of weddings daily, each with gold woven into rituals, gifts .

Gold in India is not discretionary consumption. For many households, it is considered responsible financial behaviour.

Other countries have tried more creative approaches. China has encouraged gold-backed financial products instead of physical bullion. Turkey experimented with gold-linked savings schemes that allowed households to deposit jewellery into the banking system while retaining value.

India may eventually have to move in a similar direction. Not by questioning the cultural pull of gold, but by reshaping how Indians hold it. Because Modi’s appeal and the tariff hike that followed are ultimately less about jewellery and more about managing vulnerability during a moment of global uncertainty.

India wants financial stability, a stronger rupee, and resilient reserves. But it also remains a country where instinctively trust gold more than financial markets or policy assurances.

That trust has survived wars, inflation, economic crises, and generations of reform.

Which is why the government’s message now sounds less like a polite appeal and more like a calibrated escalation… an attempt to negotiate with Indian sentiment before economic pressures force even tougher measures.