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Stocks of Indian jewellers fall after Modi calls for a pause in gold purchases to protect the rupee

Shares of Indian jewellery retailers fell on Monday after Prime Minister Narendra modi asked people to refrain from purchasing gold for one year in order to protect their foreign exchange reserves. This sparked fears of tariff increases to curb the imports of metal.

Oil prices have soared since the Iran War, which has put pressure on India's balance-of-payments and the rupee. India is the third largest oil consumer and importer in the world, importing more than 90% its crude 'oil and half its natural gas needs.

Modi's comments about gold on Sunday were made in tandem with other measures that were urged. These included fuel conservation, a greater number of people working at home, and limitations on travel and imports.

India is in high demand for gold, especially at weddings. Gold jewellery is seen as an important?part of the bride's outfit and a popular gift given by family and friends. India is the second largest gold consumer in the world, but imports are used to satisfy nearly all its needs.

On Monday, shares of jewellery manufacturers such as Titan Gold, Senco Gold, and Kalyan Jewellers dropped between 6% to 8%.

Surendra Mehta is the national secretary of the India Bullion and Jewellers Association. He said that there are fears the government may increase import duties on gold by a large amount for one year to discourage imports. "Duties may be increased even higher than in previous years."

New Delhi raised tariffs on imports of gold in?2012-2013 to stabilize a rapidly depreciating rupee. Jewellers are now concerned that the duty reductions made to reduce smuggling in 2024 from 15% to 6% could be reversed.

However, a government source stated on Monday that India does not plan to raise import duties on gold and silver.

India's balance-of-payments is projected to decline sharply in this fiscal year, with a deficit ranging from $66 billion to $70 billion. This compares to an estimated $26 billion to $28 billion between 2025 and 26.

The central bank has been prompted to limit the size and number of positions banks can hold in order to reduce the pressure on the rupee. The central bank has also tightened up on arbitrage trading.

(source: Reuters)