https://www.rediff.com/news/interview/m ... 260513.htm
'Biggest Single Danger Is If Remittances Come Down'
PRASANNA D ZORE, May 13, 2026
When Prime Minister Narendra Modi took the stage at a Bharatiya Janata Party rally in Hyderabad on the evening of May 10, he asked Indians to stop buying gold for a year. He asked them to cut fuel use, carpool, work from home, skip foreign holidays, postpone destination weddings abroad, and even reduce how much cooking oil they use at home. 'Patriotism,' he said, 'is not only about the willingness to sacrifice one's life on the border. In these times, it is about living responsibly.'
The backdrop to that speech was not hard to read. Crude oil, already trading above $100 a barrel for more than 45 days because of the Iran war, had touched a 52-week high of $126 a barrel at the end of April.
India, the world's third-largest oil importer after China and the United States, spent roughly $175 billion on crude and petroleum products in the financial year ended March 2026 -- about 22 per cent of its total import bill.
Gold came second: Indians imported $72 billion worth of the metal in the same period, second in the world only to China.
Meanwhile, India's foreign exchange reserves, which hit a record $728 billion in February, had shed more than $40 billion in just four weeks as the Reserve Bank of India sold dollars to steady the rupee, which hit a fresh record low of 95.63 to the dollar on Tuesday morning.
The IMF has projected a current account deficit of $84 billion for India in 2026.
The jewellery and gems sector, which contributes roughly 7 per cent of India's GDP and employs nearly five million people -- from diamond cutters in Surat to gold artisans in Jaipur -- reacted immediately to Modi's remarks.
Shares in Titan and Kalyan Jewellers fell as much as 11 per cent the day after Modi's speech on May 10 when markets opened for trade.
Lost in the political noise -- Congress leader Rahul Gandhi was quick to point out that Modi was about to leave on a seven-day overseas tour to the UAE, Sweden, The Netherlands, Norway and Italy even as he asked citizens to avoid foreign travel -- was a more fundamental question: How fragile is India's external position, really?
And is the government, through Modi's unusual appeal, finally signalling what it has long been reluctant to say?
Mohan Guruswamy has spent decades thinking about exactly these questions. A senior economist and former adviser to then finance minister Yashwant Sinha, he has watched India's balance-of-payments arithmetic with a scepticism that official data has done little to dispel.
In this interview with Prasanna D Zore/Rediff, Mr. Guruswamy explains why Modi's austerity appeal is a distress signal, not a pep talk and the scenario that is likely to unfold in the weeks ahead.
'NRI deposits -- roughly $100 billion -- will move out at first sign of trouble'
Prime Minister Modi asking Indians to stop buying gold for a year, reduce fuel consumption and postpone foreign travel -- does that sound to you like an economic emergency warning dressed up as a patriotic appeal?
I wouldn't say there is a serious foreign exchange crisis imminent, but we have been on this road for a long time. We run a trade deficit of nearly $100 billion every year. We've been making up for it through remittances -- this year we received about $130 billion in remittances, which is what keeps us out of a current account deficit. But that cushion may not hold.
What could happen now is a current account deficit opening up again after a gap of a few years. Middle Eastern trade is going to come down because of the conflict, and European and American trade is also contracting -- Trump's tariffs and the general slowdown in global commerce will hit us.
Meanwhile, gold imports are running at $89 billion to $90 billion, possibly touching $100 billion. Oil imports are about $120 billion. Both have to be paid for in dollars. And your exports are not going up. So there will be a gap, and when there is a gap there is pressure on the rupee-dollar parity.
The RBI has been selling dollars to defend the rupee, which is adding to the strain. The underlying problem -- the trade balance -- isn't being dealt with.
And then there's China: We're importing over $100 billion worth of goods from them, a lot of which could honestly be avoided.
You mentioned a possible return to the current account deficit. How large could it get, and what does it mean for interest rates and the broader economy?
If the current account deficit widens, you have to keep borrowing money to bridge it, which puts upward pressure on interest rates.
And when interest rates rise alongside a widening deficit, you get pressure on the parity -- your import bill goes up, your export competitiveness comes down. The two feed each other.
......
Gautam
)
as a technical intermediary to help verify and potentially transport the material, adding a layer of regional complexity that wasn't present in the original deal.
