Prime Minister Narendra Modi has appealed to the countrymen not to buy gold for marriage for a year, his appeal has sparked discussion across the country. In a country like India, where gold is considered not only as jewelery but also as a medium of tradition, social prestige and savings, this advice of the Prime Minister seemed unusual to many people. But there is a big economic concern hidden behind this.
In fact, due to the ongoing war in West Asia and the increasing crisis around the Strait of Hormuz, there has been a huge surge in global crude oil prices. In a few weeks, crude oil has increased from around $70 per barrel to around $126 per barrel. Due to this, India’s import bill is increasing rapidly.
The Prime Minister had said in his address, “Petrol and diesel have become very expensive all over the world. It is the responsibility of all of us to save the foreign exchange that is spent in buying petrol and diesel.” During this, he appealed to the people, “I would urge people not to buy gold for marriage for a year.”
According to economic experts, for India, there is a big similarity between crude oil and gold, both of which are mostly imported from abroad and are purchased in US dollars. India is dependent on imports for about 85 percent of its oil needs. At the same time, the country is also among the world’s largest gold importers.
In such a situation when oil prices rise rapidly and at the same time gold imports also remain high, then India has to spend more dollars to make import payments. This increases the pressure on foreign exchange reserves and the value of the rupee starts weakening.
Economists say that gold is not considered as a normal consumer good. Like oil, it is not necessarily an industrial or transportation need, but is purchased primarily as a form of savings and investment. Therefore, during times of global economic crisis, governments are often cautious about importing gold.
If a large number of households continue to purchase expensive gold, the outflow of dollars from the country increases. Due to this current account deficit i.e. Current Account Deficit May increase. This has a direct impact on the rupee and imported goods become more expensive.
Even before this, India has taken steps to control the import of gold in times of economic pressure. Previous governments had several times increased the import duty on gold, limited imports and promoted schemes like Sovereign Gold Bond so as to reduce the pressure on the foreign exchange.
According to experts, the biggest concerns of the government at this time are rising crude oil prices, increasing import bill, weakening rupee, inflation and pressure on foreign exchange reserves. If imports of both oil and gold increase together, the economic situation may become more challenging.
Prime Minister Modi’s message was not limited to just avoiding buying gold. He also appealed to people to re-adopt work from home, reduce non-essential journeys and save fuel. This clearly indicates that the government is cautious about global economic uncertainty and energy crisis in the coming times.
Economists believe that non-buying of gold by any one family will not have a major impact on the rupee, but the collective behavior of crores of families definitely affects the economic condition of the country. India imports hundreds of tonnes of gold every year and its demand further increases during the wedding season.
In such a situation, the government currently seems to be emphasizing on saving foreign exchange and maintaining economic stability, so that additional pressure does not increase on the Indian economy amid the global oil crisis.
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