Last week, Prime Minister Narendra Modi urged citizens to reduce spending on petroleum products, cut edible oil consumption, delay non-essential gold purchases by a year, avoid unnecessary foreign travel, and prioritise the purchase of locally made products. He also advised increased use of public transport and electric vehicles, and called for the revival of Covid-era measures such as work-from-home, all aimed at reducing petrol and diesel consumption.
Mr. Modi’s appeals have a singular focus — reducing the country’s foreign currency spending. This is an alarm bell that no government has sounded before, not even during the severe economic crisis of 1991, when the country’s foreign exchange reserves were less than $1 billion, barely enough to finance imports for a fortnight. The Reserve Bank of India was then forced to pledge the country’s gold to the Bank of England, the Bank of Japan, and later to the Union Bank of Switzerland to avoid defaulting on international debt obligations.
A widening trade deficit
The Prime Minister’s announcement seems to be in response to the delicate situation India is facing in its merchandise trade account. In 2025-26, India’s merchandise trade deficit reached a record $333 billion, an increase of over 17% as compared to the immediately preceding year. The bulge in trade deficit was caused by imports rising 7% to an all-time high of $775 billion, while exports remained nearly stagnant at $442 billion.
Higher crude oil prices in the international market following the U.S.-Israel war against Iran are yet to be reflected in the import figures. According to the International Monetary Fund’s (IMF) crude oil price index, prices have risen by 53% since the war began. When these numbers are reflected in India’s import bill, the situation could be really worrying. This could be the reason for the Prime Minister to press the alarm bell.
India’s imports in 2025-26 were driven by four product groups — gold and silver, edible oils, fertilizers, and electronic components. Imports of precious metals, valued at over $90 billion, accounted for about 12% of the import bill, marking them the third largest product group in the import basket after crude oil and electronics. Overall imports of gems and jewellery increased by almost 25% over the previous year, with most of the increase driven by gold imports, which rose by 24%, and silver imports, which surged by 150%. Exports of gems and jewellery, on the other hand, declined by over 5%, indicating that the increased imports of the precious metals were mostly absorbed domestically.
Import dependence
The unprecedented rise in gold imports has continued into the new financial year, increasing by 82% in April 2026 compared to the year before. This raises the question of whether the Prime Minister’s appeal to postpone non-essential gold purchases, along with last week’s increase in customs duty on gold and silver imports to 15%, will be enough to arrest this upward trend.
The probability of lower gold imports may seem low, as continued stock market volatility has pushed retail investors into diversifying their portfolios by opting for both physical and gold ETFs. In fact, there are expectations that a higher import duty on physical gold will increase the shift towards ETF gold.
India’s dependence on the international market for edible oils has been the most disappointing aspect of the country’s agricultural performance. Edible oil imports increased by over 12% in 2025-26 and accelerated to 40% in April 2026 (over April 2025). These numbers are a pointer that import dependence on this critical commodity may have worsened. Imports accounted for over 56% of India’s edible oil demand in 2023-24, the most recent year for which official data are available. Since the government has failed to find a way to increase domestic oilseed production, it needs citizens to reduce edible oil consumption to reduce imports, and thus save foreign currency.
Imports have brought bad news for agriculture. Spiralling fertilizer prices in international markets are not only causing the country to lose foreign currency due to its high import dependence, but they are also likely to raise the fertilizer subsidy bill. Globally, fertilizer prices increased by 46% between December 2025 and April 2026, while urea prices doubled during this period.
Over the past five years, fertilizer imports have met between 31% and 37% of India’s requirements. However, this share is expected to exceed 50% in 2025-26 as urea imports increased by over 60%. Disruptions caused by the war in West Asia have pushed India’s fertilizer import bill up by nearly 80% in 2025-26. As in the case of edible oil, it remains a mystery why domestic production was not ramped up to reduce foreign exchange outgo.
Pressure on the rupee
Though Mr. Modi has urged citizens to “prioritise Made in India products,” the Atmanirbhar Bharat Abhiyan, launched in 2020 to reduce dependence on Chinese imports, has not made much headway in several key industries. Even after six years and huge budgetary outlays under the PLI scheme, India remains significantly dependent on imports of electronic components, which grew by over 20% in the previous fiscal year.
Domestic production of accumulators and batteries was also to be stepped up to reduce the import content of electric vehicles, but in 2025-26, imports of these products increased by 50%. India’s transition towards greater technological sophistication is thus coming at the cost of considerable foreign currency outgo.
Finally, a rising trade deficit could create another significant irritant as the already weakened rupee could slide further. Over the past several months, the RBI has been selectively intervening to prevent a free-fall of the currency. However, RBI needs to carefully calibrate its market interventions since foreign currency reserves have fallen by over $21 billion since the end of February 2026, and a further decline may not be prudent.
(Biswajit Dhar is former professor, Jawaharlal Nehru University)
Published – May 19, 2026 08:30 am IST
