The social media is abuzz and divided since Prime Minister ‘s austerity measures aimed at improving India’s foreign exchange reserves and maintaining economic strength in the light of the West Asia crisis.
One of the measures announced by Modi involved deferring gold buying for a year, as it forms a major part of our import bill, alongside crude. However, according to investor and Capitalmind founder , India should stop trying to persuade citizens to buy less gold and instead focus on reducing imports through smarter supply-side measures.
In a detailed post on X today, 12 May, Shenoy argued that India’s rising gold imports are becoming a significant pressure point for the rupee and the country’s (CAD), and suggested that the (RBI) could play a direct role in easing the burden.
“Anyhow, telling people to not buy gold has the opposite effect. We don’t trust our government, inherently. So if they tell us to not buy, we will buy more,” Shenoy wrote, arguing that Indian households view gold as a trusted store of value and may respond negatively to official discouragement.
Gold imports nearing crude oil levels
According to Shenoy, India’s stood at around $51 billion in FY25 and could rise to nearly $92 billion in FY26. By comparison, net crude oil imports—a historically dominant component of India’s import bill—were estimated at roughly $102 billion.
He estimated that India’s current account deficit could widen to around $80 billion in FY26 from about $50 billion a year earlier.
“Cutting and gold by 25% each will bring the deficit down substantially,” he said.
India imported around 780 tonnes of gold last year, with demand coming from jewellery buyers, retail investors, (ETFs), and digital gold platforms.
RBI should sell part of its gold reserves
A key proposal in Shenoy’s thread is that the RBI should gradually sell a portion of its domestic gold holdings into the local market.
Shenony’s argument rests on the fact that RBI has more gold than it needs and a bloated balance sheet that is too high for a central bank that isn’t doing any quantitative easing (QE). According to his estimates, RBI holds over 800 tonnes of gold.
He suggested that the RBI could sell around 200 tonnes annually to domestic jewellers and market participants. Such a move, he argued, could replace nearly half of annual imports and reduce dollar outflows by roughly $30 billion.
“There is no major pressing need then for domestic consumers to stop consuming gold. The consumption will slow if prices fall; and if the rupee improves, and India’s gold imports slow, prices should be under control,” he pointed out.
Shenoy acknowledged that RBI gold sales would absorb rupee liquidity because payments made to the central bank effectively remove money from circulation. He estimated the liquidity impact at around ₹3 lakh crore, but said the RBI could offset it through temporary or durable liquidity measures such as variable rate repos (VRRs) or government bond purchases.
“This will reduce some but just $30 bn, which is a very small number compared to over $500 bn we own and which isn’t that necessary,” according to the ace investor.
According to him, the move could also help stabilise the rupee and improve predictability for foreign investors.
Push for gold recycling
Shenoy further suggested increasing the internal gold supply by importing through a nationwide repurchase scheme.
He argued that consumers currently face steep discounts, , and purity disputes when selling gold back into the market. To address this, he proposed a government-backed repurchase programme offering buybacks at just 2% below prevailing market prices, supported by transparent assay systems, digital receipts, and direct bank transfers.
With 30,000 tons inside the country, a 1% recycle rate is half our annual demand, he said.
He also recommended eliminating on such transactions to encourage participation.
ETFs could lend gold holdings
Another suggestion involved allowing to lend up to 10% of their holdings on a recallable basis, with interest income flowing back to investors.
While Shenoy acknowledged that the impact would be relatively small compared to overall imports, he said every additional domestic source of supply would help ease pressure on external balances.
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