On May 10, Indian Prime Minister Narendra Modi appealed to the nation's more than 1.4 billion citizens at a public rally, urging them to reduce consumption of petrol and diesel and to curb their spending on gold. The call for conservation through reduced consumption highlights how the repercussions of shifting dynamics in the Middle East are intensifying pressure on the Indian government.
India relies on imports to meet 85% of its fuel requirements, with daily crude oil imports averaging around 5.5 million barrels. Prior to the outbreak of conflict in the Middle East, approximately 50% of India's crude oil, 60% of its liquefied natural gas, and the vast majority of its liquefied petroleum gas were transported through the Strait of Hormuz. Following the conflict and the subsequent blockade of the strait, international crude oil prices surged sharply, disrupting supply chains for numerous countries. India's daily crude supply was impacted by roughly 3 million barrels.
More critically, India has struggled to find a viable "alternative route." While Oil Minister Hardeep Singh Puri has stated that 70% of crude is now transported via non-Hormuz routes, the cost involves lengthy detours around Africa, extending transport times by 15 to 20 days and significantly increasing freight and insurance costs, making this an unsustainable long-term solution.
Furthermore, the U.S. waiver that allowed countries to purchase Russian crude expired on April 11, depriving India of another crucial source of stable supply and compounding its difficulties. The combination of high energy prices and rigid import structures is causing a rapid deterioration in India's external account performance.
For the 2025-2026 fiscal year (April 1, 2025, to March 31, 2026), India's merchandise trade deficit is projected to exceed $330 billion, a significant increase from the $280 billion deficit of the previous fiscal year. Crude oil and petroleum products account for 22% of total imports, while gold and silver commodities constitute nearly 11%. Persistent foreign exchange outflows have led to a dismal performance by the rupee.
Since the onset of the Middle East conflict, the Indian rupee has depreciated by 5.5% against the U.S. dollar, ranking it among the worst-performing major Asian currencies so far this year. On May 18, the rupee hit an intraday low of 96.18 against the dollar, marking the fifth consecutive trading day of record lows.
In response, the Indian government has swiftly implemented a series of measures aimed at curbing capital flight and foreign exchange depletion. Following a substantial increase in import duties on gold and silver from 6% to 15% on May 13, the government also reclassified silver bars from "freely importable" to "restricted" and established import authorization thresholds for gold: imports exceeding 100 kilograms per consignment now require authorization, with permits linked to the importer's export value.
Concurrently, the government raised retail petrol and diesel prices for the first time in four years. The Reserve Bank of India has engaged in frequent interventions in the foreign exchange market and has proposed reducing taxes for foreign investors in Indian bonds to attract capital inflows.
The effectiveness of these combined actions is mixed and accompanied by controversy. Under the weight of these forceful policies, India's gold imports in April plummeted to their lowest level in nearly three decades, providing some stabilizing effect on the current market.
However, industry insiders warn that India is reversing its market-oriented reforms. The move to hike import tariffs deviates from the path of economic liberalization, potentially leading to a mismatch between policy direction and actual demand. A clear example is the artificially widened price gap between domestic and international gold, which could revive grey market activities like gold smuggling, ultimately undermining the authority of government intervention.
For India, upgrading its domestic industrial structure has always been a long-term strategic goal, yet its vulnerability to external shocks continues to constrain economic development. The appeal for citizens to "tighten their belts" is indeed a necessary move under complex circumstances, but it also signifies a major test of economic resilience for this South Asian giant.
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