India's policy makers stare at a set of gloomy tradeoffs: Mint 22nd May 2026

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A few suggestions to control the volume of gold imports : Free Press Journal 21st May 2026

 T he rupee has been under relentless pressure of late, and one of the factors contributing to the same is imports. Within imports, oil is the major component, which has been a challenge for the government as the price has been above $100/barrel with the closing of the Strait of Hormuz. The issue of gold imports has come to the discussion table again, with a call being made to lower the demand. Is this possible? And if so, what are the options?

The data on gold imports is interesting. They have peaked at $72.4 bn in FY26. Ten years back, they were at $31.7 bn, which means that they have more than doubled. However, when one looks at the quantity imported, the picture is very different. Imports in FY16 were at 968 tonnes, which was overtaken in FY19 at 982 tonnes. Subsequently, the trend has been downwards. It came down to 651 tonnes in FY21, which had one month of Covid-19. It increased to 879 tonnes in FY22, as gold became a safe haven for investors, and has trended downwards subsequently. It was at 795 tonnes in FY24, 757 tonnes in FY25, and 721 tonnes in FY26.

This has some interesting implications. The first is that imports have come down for sure in physical terms. However, with the price of gold rising sharply due to the tariff crisis followed by war, the imported value has gone up.

Second, the demand comes mainly from individuals, who invest in gold as a saving habit, and from ETFs, which buy in bulk. Now, the individual demand would have been affected by the higher price and their purchases affected. Typically people buy gold with a budget in mind.

For the better-off persons, the target would be in quantitative terms of 100 gm or 50 gm. For the lower income groups it would normally be a monetary limit of Rs 1000, 10,000, or 1 lakh. The former would not be affected for sure, as cost does not matter. But for the second category, a lower quantity would have been purchased.

Third, the investments of the ETFs would be high. The AMFI data shows that in FY21, the assets under the management of gold ETFs were around Rs 14,000 cr. which in five years has risen to Rs 1.7 lakh crore in FY26. Now typically, the ETFs keep a physical backing of 90-95% of the value of the commodity. Intuitively, it can be seen that this has contributed to the demand for physical gold, with the price being less relevant, as there is a natural hedge in the value of gold and the fund.

Are there ways to control this proliferation in gold imports?

There are options, and a call needs to be made. First, at the extreme, one can put quotas on the amount of gold that can come in. This is not feasible, as it will encourage smuggling and also create a black market for these licenses.

Second, a tax or duty can be imposed to push out some part of the demand. This is what has been done by the government by increasing the customs duty on both gold and silver by 9% from 6% to 15%. Here the lower income group, which buys based on a limited budget, will be affected. Higher income groups may not quite limit their purchases, as this may not matter. But a higher duty will push up the cost of gold, which will impact the CPI inflation numbers and, hence, have a bearing on the monetary policy. Therefore, this is not straightforward, and the trade-off has to be kept in mind.

The third option is to go back to the sovereign gold bonds, which worked well, as they did wean the investor away from the physical handling of gold. Here, there will be some serious discussion, as the government has been redeeming existing bonds prematurely, given the holding cost. Therefore, this will again be a tough call.

Fourth, gold deposits were also on the table, but this would mean parting with gold, which practically speaking may not be agreeable to those who like to keep it in lockers and remain anonymous. It will work if those holding the gold deposit it in banks, which, in turn, will sell it on the market. But such deposits have to be returned to the holder, which will mean taking a price risk. This may make it less feasible.

Fifth, another option is to push investors to future markets, where certain tax benefits can be given so that an avenue opens up which does not involve physical gold. In fact, non-deliverable contracts can be introduced by MCX and NCDEX to garner interest. The only cost for the government would be in the tax foregone, which would be much lower than the cost borne by the SGBs.

The last option is to do nothing and treat this as being transient. In fact, such issues have come up periodically, which has affected the import bill. The problem today is not so much the amount of gold being imported but the cost. This price is determined globally, and there is little that price takers can do about it.

In fact, curiously, central banks have been diversifying their forex assets by buying more gold. While these numbers do not enter the trade numbers, as they are dealt with independently by central banks, the international price has gone up due to this demand as the purchases tend to be of high value.

For example, the RBI held 653 tonnes of gold as reserves in March 2020. This rose to 880 tonnes in March 2026. A similar motivation of diversification, hence, also holds for households that buy and hold gold for similar reasons.

The government can consider all these options to control the volume of gold imports. This will become important if the West Asia crisis gets prolonged, putting the balance of payments under pressure.

The case for a bond issue to boost reserves : Businessline 20th May 2026

 The falling rupee is being watched closely with a clarion call being made to lower forex spending, which includes purchase of gold, foreign travel or use of petrol-diesel vehicles. There is also a discussion on the necessity of shoring up our forex reserves through either a bond issuance, or a swap that was done earlier. How serious is the issue today?

The declining rupee is a concern as the fundamentals of our balance of payments show that demand is higher than supply for forex. But is this leading to a crisis? The answer is ‘no’ because with reserves of around $690 billion, there is an import cover of 11 months. Anything above eight months is comfortable, and concerns can arise when it falls below this threshold.

The situation is not akin to 2013 when there was a sharp fall in reserves and the RBI came up with the swap plan. At that time India was part of what was called the ‘fragile five’ countries. In 1998, to deal with sanctions imposed due to Pokhran nuclear explosions, the RIBs (Resurgent India bonds) were issued. In 2000, India Millennium bonds were floated in the wake of an oil crisis. The present situation is not as alarming.

Petrol, gold and an Indian middle class that may get into debt to pay for it all: Indian Express 15th May 2026

 The principles of economics say that to reduce demand for any product, there can be quantitative or price actions. If there are restrictions on how much can be bought, demand will come down. Alternatively, the price can be increased to the extent that people buy less. Now, quantitative restrictions are difficult to administer in a large country and invariably lead to the creation of a black market. Therefore, price changes are preferred. Following the Prime Minister’s advice to consume less gold and petroleum products, the government has opted for price changes for both.

The duty on all precious metals has been increased from 6 per cent to 15 per cent. This makes gold and silver, which are big-ticket import items, more expensive. The idea is to make it more costly for consumers to buy. Now, there are basically three categories of consumers here.

The first is the affluent class, which is agnostic to price changes and will buy gold even if the price goes up.

The second is the non-affluent class, which is more price sensitive. In fact, the absolute quantity of gold imports has come down over the years from 795 tons in 2023-24 to 721 tons in 2025-26. But the value went up from $ 45.6 billion to $ 72.4 billion. Quite clearly, the bull run in gold due to global uncertainty, especially after tariffs were imposed by the US, led to higher imports. But demand came down.

On an annual basis, the price had increased by 30 per cent in FY25 and 52 per cent in FY26. Interestingly, the price of gold rose prodigiously on a monthly basis from $ 3,363/ounce in August 2025 to $ 5,019/ounce in February 2026, before coming down to an average of $4,723/ounce in April. Against this background, higher duties will further push back consumption for this class. However, when the demand is for traditional purposes like marriage, people tend to borrow money (unsecured personal loans) to buy gold, leading to unchanged demand but higher indebtedness. And ironically, the same gold can be used for further leverage under the category of gold loans!

The third category of demand is ETFs. Gold ETFs have become popular due to the bull run in prices. People invest in them, expecting the price of gold to rise, thus drawing the benefit without having to physically buy gold. However, the fund has to physically maintain 95 per cent of its value, which adds to demand. Now, these funds would not be sensitive to price, as this gets added to the value of gold and the NAVs.

It does look like the bull run in gold is over, and that the upside to price may be limited. If this view is held, then there would tend to be less interest in gold ETFs. Even so, the increase in duty of 9 per cent would translate into higher inflation as this segment has a weight of 1.2 per cent in CPI.

Similarly, the government has increased the price of petrol and diesel by about Rs 3 per litre. This comes on the back of an increase in the price of CNG by Rs 2, and that of LPG by Rs 60-Rs 993 depending on the category of consumers. Hotels and restaurants have had to cut back on their menus due to the cost of gas. Now, the higher prices for vehicle fuel may not have much impact on demand due to alternative modes of transport being available. But the OMCs will benefit, albeit partly, on this score, though there are still losses to be covered.

The impact on inflation will, however, be sharp. Petrol and diesel have a weight of around 4.9 per cent in CPI, which will react in the next inflation print and show an increase of 0.14-0.15 per cent. The second round would be on transport costs, and the tertiary impact will be determined by how other industries pass on this cost. The price of ATF was also increased earlier in April. Hence, the entire fuel basket will have a clear inflationary impact.

The entire response to these two moves needs to be watched. The price impact is easier to conjecture. However, on the side of physical demand, it can still be a shoulder shrug, or, as Bertie Wooster would ask: Has the bally thing worked?

Fuel price hike may push back the consumption story amid higher inflation: Business Standard May 15th 2026

 It was expected that the government would finally raise the prices of petrol and diesel. The questions were when and by how much. Now that there has been a Rs 3 per litre increase announced, the next question is whether this is the be all and end all, or will there be further hikes. On the face of it, there could be more coming as this will only partly address the under recovery challenge for oil marketing companies (OMCs). What does this mean for the economy?

 

The evident apprehension is on inflation, which will be impacted. LPG price were hiked to begin with after which came ATF. More recently the CNG price was increased, and now retail prices of petrol and diesel. The last two have a weight of nearly 5 per cent in the CPI and it is easy to gauge the initial impact.

But there would be secondary and tertiary effects. Transport costs such as taxi and auto fares as well as trucking would increase. This is something that needs to be watched as it has wider ramifications. The tertiary effects will be seen when transport costs go up as most commodities use these services. This will push up the input costs of production and possibly raise the question to corporates on whether there should be a fresh round of price increases.  

Companies in the chemicals sector, real estate, glass ceramics etc. have already announced increase in prices. This can become wider given the spike in fuel prices. We have already seen the WPI witnessing an increase of over 8 per cent in April, which reflected the impact of higher crude prices. Now it will manifest in retail prices too. 

Higher inflation can come in the way of the consumption story that was to play out this year. Lower inflation coupled with GST cuts and income tax rationalization helped to boost consumption in fiscal 2025-26 (FY26). Things will change this year and consumption can be pushed back with higher inflation. It looks likely that inflation will cross the 5 per cent mark for sure even if we disregard the El Nino effect. Therefore this will be a concern especially for consumer durables and FMCG companies. 

Slowdown in consumption will come in the way of private investment, which can now turn further cautious on taking such decisions. 

More importantly, the monetary policy committee (MPC) can no longer ignore the inflation impact, and hence it looks more or less certain that there cannot be any further rate cuts. There is only a case of rates going up and the future discussion will be on when and the quantum of rate hikes. 

 

Presently with inflation for April being benign at 3.5 per cent, the June policy can look through it. But the speed with which these numbers can rise will be important. WPI had leaped from 3.9 per cent to 8.3 per cent in a month’s time. While the quantum of increase may not be this sharp, the May number will reflect the primary effect  for sure (with even gold becoming dearer and getting reflected in the personal care group). 

Quite clearly the oil shock of 2026 will have a deeper impact on inflation across the world. We will not be insulated as higher inflation can finally also affect growth indirectly. This is something that requires closer monitoring.

Affluence creates jobs: the top of India's pyramid plays a vital role: MInt 11th May 2026

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Banking likely to be steady in FY27 Financial Express May 7th 2026

 The banking sector fared quite creditably in FY26 notwithstanding tariff threats and war. Bank deposits grew by 13.5% and credit by 16.1%. The question now is, how will business be in FY27?

Several developments in March and April have a bearing on banking this year. The GDP growth number is the primary factor that will guide bank credit growth. While there are links with nominal GDP growth, it can be said with reasonable confidence that a double-digit growth rate looks likely more on account of a higher GDP deflator than a real GDP growth rate. The latter would slow down to 6.9%, according to the RBI. The Budget had spoken of a growth rate of 10% in nominal GDP, which could be exceeded given the higher inflation potential this year on account of both the war as well as possible monsoon effects with El Niño developments later in the year. Growth in credit could thus be more in the region of 12-14%, which is still impressive albeit lower than last year.

Growth across sectors is something to watch out for. It appears companies in the larger size bracket would come back to the investment board this year. War may create delays as there is just too much uncertainty. More important is the action that the government may take on petrol prices. Although there may not be any immediate price hike, budgetary concerns will cause a change in view at some point. This can upset the consumption story. Also, there is a possibility of rate hikes this year, which the OIS (overnight index swap) market indicates.These factors will play on the mind of companies which could be looking to invest in capital.

So, it looks like retail credit will be the driver once again, and housing and auto loans will be the focus. Gold loans may be less buoyant given that prices have come down and it is believed that the boom may be behind us. Unless there is a direct impact on job creation and therefore income, retail credit will be on the upward trajectory this year. Curiously, the threat to employment is linked more to AI and its proliferation than the war.

Other sectors like agriculture and micro, small, and medium enterprises would be on a steady path with their nature of mandated credit likely to help maintain momentum. The services segment typified by trade and non-banking financial companies would also continue to see traction. For the former, a growing economy augurs well while for the latter, funds from banks are like a raw material needed for business.

The fate of deposits is interesting. All this while, there has been considerable competition from the capital market. In a declining interest rate scenario, households in particular have tended to look for alternatives, especially in the capital market. Interestingly, while small savings offer higher returns than deposits, the shift has been marginal. It is the capital market that provides a viable alternative with returns of 10-14% depending on circumstances.

Is the capital market well-valued today? This is a call that investors have to take. The major correction seen due to the war has meant there can be a smart upside purely on the grounds of returning to a past equilibrium. That can mean Sensex crossing the 80,000-mark. This will be a consideration for those who weigh the two markets all the time. Bank deposits did gain substantially in March with an increase of Rs 10.39 lakh crore of the Rs 31.15 lakh crore witnessed during the year, which is almost a third of the incremental deposits. While a part of the increase was due to the year-end phenomenon, the war’s impact on stock markets also contributed to this migration. The Sensex fell by 11.5% in March.

It is believed that while a high deposit growth of 13.5% won’t be maintained, it would be in the region of a steady 10-12%. And if the repo rate is increased during the course of the year, it could touch the upper end of this estimate.

Therefore, banking business will be steady and should contribute well to GDP growth. Last year, growth for the component of GDP denoted under “financial, real estate, IT, dwelling” was 9.9%. It should be 9-10% if deposits and credit maintain the growth rates forecast for the year.

Banks will have two primary concerns. The first is the quality of assets. The present situation of stressed supply chains and higher cost of petro-based inputs could persist even if the war ends soon. This will impact profit and loss accounts of companies in sectors such as petrochemicals, fertilisers, paints, glass, ceramics, textiles, and auto. Smaller units are more vulnerable, so they will need close monitoring. The second is that new investment projects or expansion would be cautious in the first half of the year, which means the focus has to be on alternatives.

A related issue concerns the space of treasury income. Typically, higher interest rate regimes mean lower profits but higher margins on credit. This can be a likely scenario especially if the RBI increases rates (based on evolving conditions). At any rate, the regime of declining interest rates appears to have ended, so the possibilities of an upside in treasury income are limited. This is reflected in bond yields which have been intransigent for quite some time.