Rupee Emergency: India Quietly Plans Foreign Exchange Defense, Gold Purchase Restrictions May Be the First Step

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India is facing foreign exchange pressure under the impact of the Iran war, and the government is studying a series of urgent response measures.

According to Bloomberg, Prime Minister Modi has taken the lead in sending signals to the public to save, calling for a halt to gold purchases—as one of India's largest import categories, gold imports have severely depleted foreign exchange reserves. He also suggested limiting outbound travel to reduce unnecessary foreign exchange outflows. Insider sources said that if the public lacks self-discipline, the government may temporarily restrict foreign exchange withdrawals for non-essential purposes in the future.

To protect increasingly strained foreign exchange reserves, the Prime Minister's Office and the Ministry of Finance are conducting consultations with the Reserve Bank of India on a number of urgent restrictive measures, including limiting imports of gold, electronics, and other non-essential items, raising fuel prices, and tightening rules on foreign exchange withdrawals. No final decisions have been made yet. Officials remain vigilant about the continued widening of the current account deficit.

While controlling imports, Modi has also called on the public to use public transportation and to work from home as much as possible to reduce fuel consumption and ease the foreign exchange pressure brought by energy imports. Previously, Asian countries such as Vietnam and Thailand adopted similar measures under such pressures.

Since the beginning of this year, the Indian rupee has depreciated by 5.6% against the US dollar, making it one of the worst-performing major currencies in Asia, and at one point dropped to a historic low. As of May 1, India's foreign exchange reserves fell to $690.7 billion, the lowest in more than a month, but still enough to cover 10 to 11 months of import demand.

Multi-pronged Approach: India's Response to Energy Shock and Forex Pressure

As the world’s third-largest oil importer, India has been severely impacted by supply disruptions in the Strait of Hormuz and surging energy prices, with a large outflow of foreign exchange and persistent pressure on the rupee.

Currently, the Reserve Bank of India has already taken several support measures, including capping banks’ daily forex exposure at $100 million to curb speculation, and previously asked banks to stop offering non-deliverable forward (NDF) contracts to non-residents, though this measure was later withdrawn. According to insiders, the Reserve Bank of India may also adjust currency hedging rules for importers, requiring exporters to remit dollars back to India immediately after receipt.

Insiders say raising fuel prices is under discussion, which would be the first adjustment since the outbreak of the Iran war. Meanwhile, Modi recently secured a sweeping victory in state-level elections, with his party and allies now controlling two-thirds of India's states, including West Bengal, formerly a stronghold of the opposition. This accumulation of political capital may provide more room for him to implement tightening measures.

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