Why PM Modi has asked Indians to reduce spending on gold, petrol, edible oils

With India's foreign exchange reserves under pressure from surging crude oil prices following the Iran conflict, attention has turned to the composition of I...

What Happened

With India's foreign exchange reserves under pressure from surging crude oil prices following the Iran conflict, attention has turned to the composition of India's import basket — specifically the three largest categories of non-capital, non-essential imports: crude oil/petroleum products, gold and precious metals, and edible oils.
The government's call for citizens to reduce spending on gold, petrol, and edible oils is not merely symbolic — these three categories together account for a structurally large share of India's total import bill and are the principal drivers of trade deficit widening.
India imported approximately $72 billion worth of gold in FY26 (roughly 9% of total imports), making gold the second-largest import category after crude oil.
Crude oil and petroleum product imports cost approximately $174.9 billion in FY26 — about 22% of total imports — and are almost entirely non-compressible in the short run given India's 88% crude import dependence.
Edible oils (palm oil, soybean oil, sunflower oil) form another significant structural import, with India being one of the world's largest edible oil importers due to a domestic oilseed production shortfall.
The IMF has projected India's current account deficit could widen to approximately $84.5 billion (~2% of GDP) in 2026, underscoring the scale of external stress.

Static Topic Bridges

India's Import Composition and the Trade Deficit

India's merchandise trade deficit — the gap between the value of goods imported and goods exported — is structurally driven by three inelastic or semi-inelastic import categories: energy (crude oil and petroleum products), gold and precious metals, and edible oils. These are termed "inelastic" because domestic production cannot substitute for them in the short run — India lacks sufficient crude oil, faces a structural oilseed deficit, and has cultural demand for gold that is relatively price-insensitive. The trade deficit is the primary driver of India's current account deficit (CAD), which is partially offset by net invisibles (services exports, remittances) and foreign capital inflows (FDI, FPI, ECBs).

Crude oil and petroleum products: ~$174.9 billion (~22% of total imports) in FY26; India imports ~88% of crude requirements.
Gold and precious metals: ~$72 billion (~9% of total imports) in FY26, up 24% year-on-year in value despite volume falling 4.76% to 721 tonnes (driven by higher global gold prices).
Edible oils: India imports predominantly palm oil (55–60% of edible oil imports, mainly from Indonesia and Malaysia), soybean oil (from Argentina and Brazil), and sunflower oil (from Ukraine, Russia, Argentina).
India's overall trade deficit narrowed to $20.67 billion in March 2026 (the smallest since June 2025), but the Iran war-driven oil price surge has since reversed this trend.
India's CAD (FY25 full year): $23.3 billion — a significant improvement from $26.0 billion in FY24.

Connection to this news: The appeal to reduce gold purchases and moderate fuel/edible oil consumption is directly aimed at compressing the trade deficit — specifically the two categories (gold and edible oil) where demand is partly discretionary and where even marginal reductions could meaningfully reduce the forex outflow.

Gold: Cultural Demand, Economic Role, and Import Management

Gold occupies a unique position in India's economy — it is simultaneously a financial asset, a store of value, a cultural and religious necessity (for weddings, festivals), and a significant import burden. India is the world's second-largest consumer of gold (after China). The demand is relatively price-inelastic, especially for jewellery driven by life-cycle events (weddings). However, gold also serves as an inflation hedge and alternative investment, making investment demand responsive to macroeconomic conditions. From a BoP perspective, gold imports directly widen the current account deficit without generating future export earnings or productive capacity — unlike imports of machinery or technology.

India's gold import duty history: reduced from 15% to 6% basic customs duty in Union Budget (July 2024) to reduce smuggling; this contributed to the FY26 import surge.
Gold imports account for approximately 9% of India's total import bill — second only to crude oil.
India imported 721.03 tonnes of gold in FY26 (volume), valued at ~$72 billion.
The RBI simultaneously accumulates gold as a reserve asset — growing sovereign gold from 794.64 MT (September 2025) to 880.52 MT (March 2026) — creating a policy paradox where institutional buying continues even as citizens are asked to reduce consumer purchases.
Gold monetisation schemes (Gold Monetisation Scheme, 2015; Sovereign Gold Bond scheme, 2015) were designed to channel domestic gold holdings into the financial system, reducing import dependence — but uptake has been limited.
It is estimated that Indian households hold approximately 25,000 tonnes of gold in total — the largest private gold holding in the world.

Connection to this news: The appeal to reduce gold purchases targets investment and discretionary jewellery demand — the segments most amenable to behavioural change. A meaningful reduction in gold imports (even 10–15%) could save $7–10 billion in forex annually, providing tangible balance of payments relief.

Edible Oil Imports and the Oilseed Production Deficit

India is heavily dependent on edible oil imports due to a structural mismatch between domestic oilseed production and consumption demand. The country consumes approximately 23–24 million tonnes of edible oil annually but domestically produces only around 10–12 million tonnes — requiring imports of 13–15 million tonnes. This dependence is concentrated in palm oil, which is cheaper than domestically produced oils (groundnut, mustard, soybean) but cannot be easily grown at scale in India's climatic conditions. The National Mission on Edible Oils — Oil Palm (NMEO-OP), launched in 2021, aims to expand domestic oil palm cultivation, particularly in the Northeast and Andaman & Nicobar Islands, to reduce import dependence over 5–7 years.

Palm oil comprises 55–60% of India's edible oil imports; sourced primarily from Indonesia and Malaysia.
Soybean oil imports come from Argentina and Brazil; sunflower oil from Ukraine, Russia, and Argentina.
India's edible oil import bill is typically $15–20 billion annually, making it the third-largest import category after crude oil and gold.
NMEO-OP (2021): Targets increasing domestic oil palm area from ~3.7 lakh hectares to 10 lakh hectares by 2025-26 and 16.7 lakh hectares by 2029-30, aiming to produce 11.2 lakh tonnes of crude palm oil domestically.
Edible oil prices are highly sensitive to global agricultural commodity cycles, currency fluctuations, and supply disruptions in producer countries (Ukraine war, Indonesia's export policy reversals).
Unlike gold, edible oil is a daily consumption necessity — demand reduction cannot be achieved through behavioural appeals alone; structural supply-side solutions (NMEO-OP) are essential.

Connection to this news: The Iran war's oil price shock is accelerating urgency around edible oil import dependence — because a weakening rupee makes all dollar-denominated imports (including palm oil) more expensive in rupee terms, amplifying domestic food inflation and further straining forex reserves.

Current Account Deficit Management: Structural vs Cyclical Responses

UPSC tests understanding of the difference between cyclical policy responses (emergency measures for short-term crisis) and structural reforms (addressing the root causes of CAD over the medium term). India's CAD is structurally driven by energy import dependence and gold demand. Cyclical measures (import duty hikes, LRS restrictions, NRI deposit schemes) can temporarily compress the deficit but do not address the underlying production gaps. Structural measures — renewable energy expansion to reduce oil dependence, oilseed production enhancement (NMEO-OP), gold monetisation, and export competitiveness improvements — are necessary for durable CAD reduction.

India's CAD as % of GDP: FY25: ~0.9% (full year), projected to widen to ~2% of GDP in 2026 (IMF).
A CAD above 2.5–3% of GDP is generally considered unsustainable and triggers currency pressure.
India's services trade surplus (IT exports, business services) and remittances are the primary structural buffers that keep the CAD manageable despite the merchandise deficit.
Net services receipts grew to $57.5 billion in Q3 FY26, driven by software and business services — India's structural forex earner.
Remittances: $135.46 billion in FY25 (highest globally), serving as the largest single current account credit partially offsetting the goods trade deficit.

Connection to this news: The government's dual focus — both appealing for behavioural change on gold/petrol and examining structural import restrictions — reflects an understanding that cyclical measures alone cannot sustainably address a CAD that is rooted in energy import dependence, oilseed shortfalls, and deep cultural demand for gold.

Key Facts & Data

India's crude and petroleum product imports (FY26): ~$174.9 billion (~22% of total imports).
India's gold imports (FY26): ~$72 billion (~9% of total imports); volume: 721 tonnes.
Gold import duty: reduced from 15% to 6% in July 2024 Budget.
India's edible oil imports: approximately 13–15 million tonnes per year; annual import bill ~$15–20 billion.
Palm oil share of edible oil imports: 55–60%; key suppliers: Indonesia and Malaysia.
India's crude oil import dependence: ~88% of requirements.
India's CAD (FY25 full year): $23.3 billion; IMF 2026 projection: ~$84.5 billion (~2% of GDP).
India's trade deficit (March 2026): $20.67 billion — smallest since June 2025.
India's net services receipts (Q3 FY26): $57.5 billion.
India's remittances (FY25): $135.46 billion — world's highest.
Indian household gold holdings (estimated): approximately 25,000 tonnes — world's largest private gold stock.
NMEO-OP (2021): Targets 16.7 lakh hectares of oil palm by 2029-30; domestic crude palm oil target: 11.2 lakh tonnes.
Sovereign Gold Bond Scheme: Launched 2015 to channel domestic gold savings into financial system.
Gold Monetisation Scheme: Launched 2015 to mobilise dormant household gold.