Modi has called on the public to stop buying gold. What economic considerations underlie this move, and what impacts will it bring?

It’s essentially India’s exchange rate collapse. This isn’t the first time the Indian rupee has crashed—but it may be the most severe one yet. After the Asian financial crisis of 1997 effectively ended, India’s exchange rate remained relatively stable for about a decade, fluctuating mostly within the range of 40–50. Since 2008, however, the rupee has undergone five distinct cycles of sharp depreciation followed by consolidation—each hitting lows near 40 before ultimately plunging to over 95.5 today. I’ve broadly categorized India’s economic trajectory over the past 30 years into five such cycles. These five phases of consolidation and depreciation collectively shaped India’s current economic situation. From the perspective of ‘Dongda’ (a colloquial term for China), India entered a period of relatively steady growth after the Asian financial crisis—that is, during the first consolidation phase—and its growth pace was not significantly slower than Dongda’s. From top to bottom, it’s genuinely difficult to confidently assert that Dongda can consistently outperform India—a country pursuing a service-oriented development path, enjoying higher levels of democratization, and possessing a much younger demographic. The first two depreciations occurred against the backdrop of China’s widening lead over India. In 2007, prior to the first depreciation, China’s GDP stood at $3.55 trillion, while India’s was $1.22 trillion—meaning Dongda had maintained an economic advantage over India of roughly 2.5–3 times since around 1997. By the end of the second depreciation in 2014, Dongda had reached the $10 trillion milestone; although India also hit $2 trillion, the gap had widened to fivefold—a fact beyond dispute. Of course, I don’t attribute this solely to poor handling by the Singh administration. During this period, Mexico, Brazil, Russia, and many other emerging economies likewise posted unimpressive currency performance. It was simply that Dongda’s overall economic policy—including exchange-rate management—was exceptionally well-executed between 2008 and 2015, granting it a scale advantage far surpassing other emerging economies. The third consolidation phase (2014–2017) marked the last genuine ‘honeymoon’ period between China and India. Though Modi had already earned the nickname ‘Old Immortal’ by then, his policies still centered primarily on upgrading manufacturing capacity—and he had not yet overtly antagonized Dongda. Nearly all analyses of the so-called ‘Dragon vs. Elephant’ rivalry—whether produced domestically in Dongda or from Western perspectives—were completed during this third consolidation phase. At the time, countries worldwide—including Dongda itself—recognized both China and India as pivotal forces reshaping the global order for the Global South, viewing their relationship as one combining competition with cooperation. Though purely coincidental in timing, the end of the third consolidation phase also coincided with Modi and his India embarking on a deeper turn toward populism. I’m uncertain whether Modi discovered, amid deep structural reforms, that the nation’s profound social fragmentation necessitated cultivating a loyal political base—or whether he is, like Viktor Orbán, an ambitious leader inherently destined for populism. The fourth consolidation phase represented India’s most proactive era of seeking to rival Dongda: militarily, the major Galwan Valley clash occurred during this period; economically, India frantically attempted to attract industries relocating outward from China—such as Apple; and diplomatically, across numerous dimensions of national image and foreign policy, India adopted an attitude of ‘If Dongda has it, we must have it too.’ Upon entering the fourth depreciation phase, India chose 83 as a major defensive line in its exchange-rate defense campaign—making this fourth depreciation appear the least conspicuous (shortest duration, smallest overall decline, and mildest slope).

India’s dream of rising as a great power is being eroded by its plunging exchange rate—its GDP ranking has already slipped from third to sixth.

After adjustment, India’s nominal GDP was slashed by ₹11.67 trillion (approximately $130 billion), a 3.27% reduction—effectively a forced ‘squeezing-out of inflated figures.’ Meanwhile, the IMF has rated India’s statistical quality as ‘C’ for two consecutive years, directly citing flaws including the informal economy accounting for 45% of GDP and heavy reliance on estimation-based calculations—further confirming the earlier GDP data’s artificial inflation. The double blow of currency depreciation and statistical correction means India’s fall from third to sixth place is merely the premature revelation of economic reality. The rupee’s persistent plunge is no accidental market fluctuation—it is the concentrated eruption of India’s long-standing ‘structural ailments’ colliding with sudden geopolitical crises, forming a fatal resonance among energy dependence, trade imbalance, and capital flight. India is the world’s third-largest oil importer: 85% of its crude oil is imported, with 54% shipped through the Strait of Hormuz. In late February 2026, U.S.-Israeli military strikes against Iran ignited acute geopolitical tension in the Middle East, sending Brent crude prices surging nearly 50%—briefly exceeding $110 per barrel. Soaring oil prices dramatically increased India’s energy import bill, adding $12–13 billion in extra monthly expenditure. In 2025, India’s current-account deficit rose to 2.1% of GDP, while its trade deficit continued expanding—depriving the rupee of its most fundamental support. Amid this trade imbalance, capital flight accelerated sharply. India’s ‘golden era’ relied heavily on inbound foreign investment—but now, as its growth slows and exchange-rate risks surge, foreign capital is fleeing at record speed. Compounding the problem, India’s manufacturing sector accounts for only 13% of GDP—far below its 25% target—while its once-dominant IT services industry is being eroded by AI large language models: Tata Consultancy Services and other giants are conducting massive layoffs, weakening the core engine of economic growth and further undermining international investor confidence. Capital flight and currency depreciation thus spiral into a vicious cycle. Moreover, robust domestic gold demand places additional strain: India’s gold imports reached $71.98 billion in 2025—second only to crude oil in foreign-exchange outflow—further pressuring foreign reserves and intensifying downward pressure on the rupee. Faced with the rupee’s relentless slide, India’s government and central bank launched a comprehensive ‘exchange-rate defense campaign.’ Yet this seemingly vigorous self-rescue effort—because it treats symptoms rather than root causes and falls into policy paradoxes—ultimately devolved into a futile struggle where ‘the more they intervene, the more the rupee falls.’ The Reserve Bank of India acted first: beginning in late March, it continuously sold dollars in both spot and forward markets, depleting over $40 billion in foreign reserves within a month. It also capped banks’ daily foreign-exchange positions at $100 million and banned offshore non-deliverable forward (NDF) contracts—cracking down hard on exchange-rate speculation. The government responded on May 13 by sharply raising import tariffs on gold and silver from 6% to 15%, aiming to curb gold imports and reduce foreign-exchange outflows. Modi himself publicly urged citizens to postpone gold purchases, limit overseas travel, and reduce fuel consumption—launching a nationwide ‘foreign-exchange conservation’ campaign. Yet these measures delivered only fleeting stabilization before the rupee resumed its downward slide. The core issue lies in India’s entrapment in the ‘Impossible Trinity’ policy paradox—monetary policy independence, exchange-rate stability, and free capital mobility cannot all be achieved simultaneously.

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