Blasé Capital gold on hold

It is the rupee, stupid, not gold. While most reports, including official explanation, reveal that the recent curbs on imports of gold and silver were due to misuses, the real reason seems to be the currency. Ever since, the exchange rate breached the INR 95 to a dollar mark a few days ago, the central bank, and policy-makers were in a tizzy. There was, and is, a genuine scare, say sources that speculators led by a major force were hell bent to weaken the rupee to INR 100 a dollar. This was a psychological barrier that they did not want to be crossed. If it went past INR100, who knows where it would stop. The rationale was that at that exchange rate level, the currency would be completely in the grips of a cartel, led by a renowned currency-buster, and the economy would be held hostage. In the minds of the policy-makers, the attack on the British pound in September 1992 (beginning Black Wednesday), and on the Asian currencies in 1997 were the top-of-the-mind recall.

To break the back of the speculators, the Reserve Bank of India (RBI) initiated several steps to drastically limit short positions, apart from other measures to curb the trading in derivatives, which form an important component of modern attacks on assets, commodities, and currencies. This did help, after an initial reversal, when the speculative attacks intensified. Now, with curbs on imports of bullion, the policy-makers hope to correct the macro indicators, i.e., to reduce imports, and somehow manage the trade deficits in an era of lower exports, capital flight from the stock markets, and limited inflows of investment capital. In some senses, the fear is that if the Iran war drags on, India may find itself in a external environment that is akin to the late 1980s, and early 1990s, when India had to physically ship gold out of the country to boost the dwindling foreign exchange reserves, and listen to the diktats of the global agencies, and relentlessly pursue reforms.

While the reforms in the 1990s proved to be good for the country, the foreign exchange crisis was a scare that no nation wishes to go through. Today, a similar situation may have wider ramifications that will extend beyond growth, and envelope inflation, shortages, and civil unrest. In the case of the Asian currency crisis, several nations witnessed huge dips in GDP, and widespread social unrest. In the case of the pounding on pound, Britain withdrew from European Exchange Rate Mechanism, a step that twistedly led to Brexit, or a break from the European Union decades later. India feels that a similar push on the rupee may make it inward-looking, and shy away from globalisation, which will be worse for the society where

aspirations are high, ambitions overrule realities, and the youth is stressed. There may be political and electoral fallouts, which may linger on for a decade or so, and the ruling regime may find itself out of the favour of the voters.

Experiences related to the pound prove the political impact. “The ERM (exchange rate mechanism) crisis, and the sight of flailing ministers caused a huge shock to the reputation of the Conservative management of the economy. Despite having just won an election, support for the Conservatives plummeted from 42 per cent to 29 per cent overnight, and it never recovered. The rest of Parliament would be dominated by scandal, sleaze, a diminishing majority, rebellions by increasingly Euro-sceptic backbenchers, and a general sense in the country that 18 years of Conservative government was too much,” explains a website. If similar feelings emanate due to the rupee crisis, the ruling regime may find itself in a spot, politically, and electorally. The momentum it built over the past 11 years may reverse, and quite rapidly. The opposition may revive instantly, and be back in the electoral game. Apart from the central power, power in the states may slip out, and for a long time.

One of the worst experiences of the Asian currency crisis was the social rout. “In Thailand, the crisis led to a dramatic rise in unemployment, with millions of people losing their jobs as businesses scaled back operations in the wake of reduced consumer spending and investment. The construction and tourism sectors, which had been the pillars of the Thai economy, were particularly hit hard. Many families faced dire financial situations, leading to increased poverty rates. Estimates suggested that the crisis pushed approximately 10 million Thais into poverty, significantly impacting their quality of life,” explains a website. In Indonesia, the social unrest due to the crisis, led to a regime change, a regime that had ruled for three decades.

Hence, the official reason for the import curbs on bullion, which is that the traders misused the import duty differential due to the free trade agreement with ASEAN nations, may be a smokescreen. Yes, gold imports have zoomed in the first eleven months of 2025-26, to nearly $60 billion. But the policies imposed, which is a virtual ban on almost everything, including contracts signed, and shipments about to ensue, shows a fear psychosis that goes beyond foreign exchange. It is the rupee, which is in focus, on the radar, and within the crossfire.