Prime Minister Narendra Modi’s recent call for conserving foreign exchange reserves — through measures such as avoiding gold purchases, reducing fuel consumption by working from home (in fact, April fuel consumption data already reveals a steep 4.6% decline) and deferring foreign travel — came against the backdrop of the fragility marking the current global economic order. Before we discuss that further, let’s look at a few indicators of India’s economic health over the past few years. For the three-year period ended financial year 2025-2026 (FY26), the economy expanded by 7.3% on average, average inflation was 4%, the banking system’s average net profit stood at ₹3.8 lakh crore, average growth rate of exports of goods and services was 3.5%, unemployment clocked 3.1%, and foreign exchange reserves stood at $691 billion. Petroleum and gold imports were 33% of overall imports during this period.
In contrast to this macroeconomic robustness, the rupee has depreciated by 11.2% against the dollar between April 2025 and now. Southeast Asian currencies, on the other hand, appreciated by an average of 5.3%; Brazilian and South African currencies appreciated by an average of 13.1%. The Dollar Index depreciated by 5.6% over the same period. It’s also a fact that portfolio capital outflow has been unrelenting — the highest since 1991. (Portfolio capital outflows stand at $21.3 billion in the calendar-year-to-date.) It is thus clear that the large depreciation in the rupee’s value is not in sync with India’s robust macro fundamentals. The Reserve Bank of India (RBI) took note of this in its latest monetary policy statement. So, what is the reason behind the rupee’s depreciation?
One possible reason is that, for a considerable time, the rupee was allowed to function as a shock-absorber to spur exports. However, while it did serve this purpose initially, exports became insensitive to this beyond a point and imports also started to rise. With the rupee supposedly acting as a shock absorber, the markets joined in and a self fulfilling prophecy may have played out with the market participants betting on a weaker rupee against the dollar, even though macro fundamentals clearly suggest otherwise. Even as we begin to appreciate the hard fact that the decline in the rupee’s value is likely beyond what India’s macro-fundamentals can explain, we must look at the options before us.
In principle, we need a comprehensive policy to address the balance of payments question and ensure that the rupee’s value is in sync with India’s macro-fundamentals. For every one-rupee appreciation of the dollar’s value, the GDP decline for India is estimated to be around $60 billion (nominal dollar terms).
Now, let us contextualise the PM’s suggestions. First, let’s look at gold. India imports approximately 750-800 tonnes of the metal per year. Domestic gold supply is only a fraction of India’s overall supply; imports contributed around 86% in 2024, resulting in a significant forex outflow. The discovery of new gold mines in districts of Odisha, Madhya Pradesh, and Andhra Pradesh could help ease the import pressure and is a positive for our current account balance. But that will take some time. So, there is no harm in reducing gold purchases in the interim to reduce imports. The Union government has just raised the customs duties on imports of precious metals, including gold, from 6% to 15%. Beyond this, the comprehensive gold monetisation policy announced by the Centre roughly a decade ago needs to be expanded into a national policy on gold (RBI recommended a national policy as far back as 1992). The expanded policy must cover trading, bullion import, jewellery export, investment, refining, etc.
The good thing about gold prices rising is the surge in gold loans. Loans against gold jewellery hovered around ~ ₹7.5 lakh crore at the end of FY26. Gold-backed loans serve as a major source of short-term agricultural credit, especially for small and marginal farmers, tenant cultivators, and those engaged in allied activities.
Next, let us look at outward remittances. During FY22-26, ~$136 billion was remitted outwards by Indians under the Liberalised Remittance Scheme, of which 77% included the purchase of immovable property, investment in debt/equity, gifts, and foreign-travel expenses. In FY13, RBI temporarily reduced the LRS limit from $200,000 to $75,000. There is no harm in reassessing the LRS limit now.
On the issue of NRI bonds, there needs to be an informed discussion, as the current costs of offering such a scheme may be quite high. There is also a genuine need to look at the tax structure for foreign investors, which changed after 2023.
Last but not the least, the current spike in yuan-based transactions may have caught the attention of those seeking to explain the rupee’s depreciation but data suggests otherwise. Notional currency market figures show as much as ~97.6% of spot yuan transactions were settled in dollars as of March 2026.
The broken cog in the currency wheel remains the Chinese central bank’s hard-wired interventions on the dollar-yuan exchange rate. The pair has strengthened, even as most major currency pairs have been at the receiving end of a resilient dollar over the past two months. There is thus a genuine need to develop a Brics+ currency in sync with Brics Pay. The technical prowess and financial re-engineering driven by the human capital of Brics+ nations make this a worthy proposition. Interestingly, Brics’s share in the Global South’s trade exceeds 40%, indicating the need for a collaborative ecosystem led by Brics+ that could structurally alter how global currency markets have behaved since the Bretton Woods system.
Soumya Kanti Ghosh is a member of the 16th Finance Commission, a member of PMEAC, and group chief economist, State Bank of India. The views expressed are personal
