Prime Minister Narendra Modi has appealed to the countrymen not to buy gold for one year. In such a situation, the discussion regarding demand and supply of gold has intensified. There is also talk on how important gold is for the economy and how much stability it provides. Let us tell you what is the importance of gold for the economy and how much gold India buys from abroad every year.
India is the second largest consumer in the world. Usually the country imports about 700-900 tonnes of gold every year, which is worth more than $50 billion to $60 billion. This fulfills approximately 90% of the country’s domestic demand. However, imports declined in early 2026 due to GST-related issues and lack of demand.
Why is gold so important for India’s economy?
India is one of the largest consumers and importers of gold in the world. According to a Bloomberg report, the country consumes about 700-800 tonnes of gold every year, but its production in the country is hardly 1-2 tonnes. For this reason, India has to depend on imports for more than 90% of its needs. Compared to many other things, gold import does not directly help factories or increase production. Nevertheless, large amounts of dollars have to be spent for this, which increases the pressure on India’s current account deficit and foreign exchange reserves. This concern increases when crude oil prices are high, because India already buys about 85% of its oil needs from abroad.
With energy and fertilizer prices rising due to the ongoing conflict in West Asia, governments and policy makers are now focusing on reducing non-essential imports that increase import bills. Gold accounts for about 9% of India’s total import bill, the second largest import category after crude oil. Gold provides stability when the stock market falls during economic recession, war or geopolitical uncertainty.
Gold imports are declining
This appeal of the Prime Minister has come at a time when India’s gold market is already facing a huge supply shortage. Gold imports declined from about 100 tonnes in January 2026 to about 65-66 tonnes in February and then fell to 20-22 tonnes in March. Excluding the Covid period, this is one of the lowest monthly levels in the last 30 years. The reason for this decline is not only due to lack of demand due to rising prices, but also due to government and operational problems in the import process.
According to CNBC report, import of gold in India depends on the approval of authorized banks and customs. There was a delay in updating the annual list of banks allowed to import gold at the beginning of the financial year. Apart from this, due to delay in customs related rules and uncertainty regarding tax rules, the supply of gold also slowed down.
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