India Tries to Balance Gold Demand with Economic Reality

India's strong dependence on imported gold has put pressure on its trade balance and foreign exchange reserves, prompting Prime Minister Narendra Modi to appeal to consumers to reduce their gold purchases. The call highlights the country's economic balancing act between managing imports and supporting a market deeply linked to social and cultural traditions.

The World Gold Council reports that Indian consumers bought 131 tonnes of gold in the second quarter of 2026, down 6% from the same period last year. Despite this decline in volume, spending on gold increased 35% to Rs 1.98 lakh crore due to higher prices. Jewellery demand fell 15% year-over-year, while investment demand remained above its long-term average.

The government has raised the import duty on gold from 6% to 15% in May as part of measures to moderate imports and conserve foreign exchange. The World Gold Council expects this higher duty, along with other policy measures, to weigh on demand. Recycling is becoming increasingly important for India to meet domestic demand without relying entirely on fresh imports.

The impact of a sustained reduction in gold purchases would extend across the jewellery ecosystem, affecting retailers, manufacturers, refiners, artisans, logistics companies, and other businesses that depend on consumer demand during wedding and festive seasons. Moderating imports could provide an economic benefit if consumers shift part of their savings towards financial assets or other productive investments.