Shamika Ravi, a distinguished member of the Prime Minister's Economic Advisory Council (PM-EAC), has strongly defended Prime Minister Narendra Modi's recent appeal to Indian citizens to postpone non-essential gold purchases. Ravi characterized gold as a 'trapped asset,' asserting that it locks away significant capital and places undue pressure on India's vital foreign exchange reserves.
Gold as a 'Trapped Asset'
During an interview, Ravi elaborated on her stance, explaining that economists frequently refer to such holdings as 'dead assets.' She highlighted India's substantial consumption of gold, which necessitates considerable foreign exchange expenditure for imports. This economic reality prompted Modi's call for restraint, particularly amidst escalating global uncertainties and a surge in crude oil prices, exacerbated by geopolitical events like the Iran war.
India's economy is acutely vulnerable to oil price fluctuations, importing approximately 85% of its crude oil requirements. Ravi clarified that the Prime Minister's appeal is primarily directed at retail consumers, distinguishing it from the gems and jewellery sector, which remains a crucial export industry for the nation.
Impact on the Financial System
Ravi emphasized that gold held by households often remains outside the formal, productive financial system. These assets, she noted, are typically stored away and lack liquidity, failing to contribute to broader economic investment. Efforts are reportedly underway to explore mechanisms that could enhance the liquidity of household gold and integrate it more effectively into the financial system for investment purposes.
Her comments coincide with a period of record-high gold imports for India. Data from the Commerce Ministry indicates that India's gold import bill surged by 24% to an unprecedented $71.98 billion in the fiscal year 2025-26. This increase occurred despite a 4.76% decrease in the quantity of gold imported, which fell to 721.03 tonnes from 757.09 tonnes in the preceding year, reflecting the impact of rising global gold prices.
Addressing Economic Concerns
Regarding concerns that reduced fuel consumption and higher energy costs could impede economic activity, Ravi acknowledged the validity of these fears, stating that policymakers are actively planning to mitigate risks stemming from the global oil shock. She pointed out that demand for petrol and diesel in India is relatively price-elastic, meaning significant price increases are necessary to curb consumption effectively.
Additionally, Ravi addressed the depreciation of the Indian rupee against the US dollar. She advised against viewing a weaker currency solely as a negative indicator, noting that it can also benefit exporters. She added that the Reserve Bank of India (RBI) is permitting the rupee to be more market-driven, rather than expending substantial resources to maintain a fixed exchange rate, a policy she deemed less strategic.