Self-restraint call not from 'stress', but to keep country slipping under global volatility

New Delhi, May 15 Gold is very much the topic of conversation following Prime Minister Narendra Modi's call urging Indians to refrain from buying it for some time.

In India, gold is a financial asset as well as linked with social, cultural, and religious traditions. Purchases are culturally important in India, but they are also import-heavy. Asking households to delay buying gold is a direct way to trim the outflow of foreign exchange without significantly touching taxes or subsidies, which makes it a relatively soft policy lever.

The precious yellow metal is also a critical component of foreign exchange reserves because it provides stability, diversification, and a hedge against currency risk. For India, gold has historically been used both as collateral in crises (like 1991) and as a strategic asset to strengthen reserves.

Incidentally, India is among the world's top 10 countries in terms of gold reserves.

Gold reserves matter because they act as a country’s financial insurance policy. In 1991, India pledged gold to raise emergency foreign exchange, and in 2009, it bought 200 tonnes of gold from the International Monetary Fund (IMF) to diversify reserves and strengthen confidence after a global financial crisis.

In what was termed the "secret sale of gold" in 1991, the Reserve Bank of India (RBI) airlifted around 47,000 kg of the metal to raise a $405 million emergency loan. The country was then hit by a balance-of-payments crisis, oil prices were high, remittances were weak, and the country’s foreign currency holdings fell to alarmingly low levels. To avoid default, the government airlifted and pledged gold abroad as collateral for emergency foreign exchange.

It was a moment that became a tale of the fragility of the Indian economy in that era.

In the second instance, in 2009, the proportion of gold as part of India’s foreign reserves of $285.5 billion had fallen in comparison to the past decades to a mere $10.3 billion. According to an IMF statement then, the sale of 200 tonnes of gold to the RBI then represented "almost half of the total sales volume" of 403.3 tonnes that was approved by the Executive Board in September 2009.

India doesn’t have a fixed "target" for how much gold it must buy — it depends on the RBI’s reserve management strategy, global market conditions, and the balance between foreign currency assets and gold.

Currently, reports suggest that as of early 2026, the RBI holds around 880–890 tonnes of gold in its reserves, valued at over $58 billion.

Gold makes up 7–8 per cent of India’s total foreign exchange reserves. A country can use gold reserves to support confidence in its economy when markets are unstable. Gold is seen as a safe-haven asset, so it tends to hold value when currencies, bonds, or other assets are under pressure.

Gold also helps with diversification. Most foreign exchange reserves are usually held in dollars, euros, yen, or pounds, but those currencies can move with policy decisions or global shocks, while gold is not tied to any one government.

In a real stress event, a central bank can sell, lease, or pledge gold to raise foreign currency, pay external obligations, or defend the national currency. That makes gold especially useful because it is liquid, universally recognised, and not dependent on another country’s promise to pay. With the ongoing global volatility, gold is also useful as a hedge against sanctions and geopolitical risk, because physical gold stored at home cannot be frozen the way some currency reserves can be.

As per the Economic Survey 2025-26, the country’s foreign exchange reserves increased to a healthy $701.4 billion as of January 16 this year, up from $668 billion as of the end of March 2025. The country’s reserves need protection because global shocks can quickly drain these through higher oil bills, costlier fertiliser imports, capital outflows, and a weaker rupee. The call for restraint is essentially one of saving foreign exchange during a global crisis triggered by West Asia tensions and surging energy prices.

When India spends less on imported fuel, travel, gold, and high-input consumption, it reduces pressure on the current account and on reserves. Restraint here is about cutting non-essential foreign-exchange outflows before they become a macroeconomic problem.

Opposition parties have attacked the Prime Minister’s call as evidence of stress, but such small behavioural changes can help conserve reserves and reduce the need for stronger, less popular interventions later. The time from pledged gold in 1991 to the high reserve pile in 2026 tells a clear story: India has built a far stronger external balance sheet, but it still cannot afford complacency. Thus, the appeal is both a reminder of India’s old vulnerability and an attempt to keep the country from slipping back into a position where gold, reserves, and emergency financing again become the only lines of defence.

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