(May 15): India’s government is ratcheting up steps to curb foreign outflows and cushion the economy from the fallout of the Iran war.
On Friday, state-run oil refiners raised gasoline and diesel prices by over 3%, the first increase in four years, to curb the mounting losses and contain domestic demand after global crude prices surged after the Iran war. New Delhi had previously prioritised protecting consumers from high oil prices, which squeezed refiners’ margins and impacted balance sheets.
The development comes a day after authorities tightened rules for importing gold into the country while local government in the capital region of Delhi told employees to work from home twice a week to save fuel. The government also temporarily banned exports of sugar to protect local supplies.
Separately, Bloomberg News reported that the Reserve Bank of India proposed a significant reduction in the taxes paid by foreign investors on the nation’s bonds, another way to boost inflows.
India is the world’s third-largest importer of oil and heavily reliant on energy supplies through the Strait of Hormuz, a key waterway effectively blocked for more than two months because of the Iran war. Higher energy bills have led to a surge in foreign outflows from India, putting pressure on the rupee, which has plunged to a record low.
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The latest moves are part of emergency steps the government considered to cushion the impact of the war on the economy. Officials are also discussing hiking fuel prices for the first time since the conflict began, Bloomberg News reported earlier this week. Gold and consumer electronics are considered non-essential imports, officials said, and restricting purchases would help to preserve foreign currency.
“The government is undertaking various precautionary measures to conserve foreign exchange reserves amid pressure on the rupee,” said Teresa John, economist with Nirmal Bang Securities. The measures to restrict gold imports are similar to previous periods of “external stress,” she said.
Prime Minister Narendra Modi, whose party won a landslide in recent state elections, warned the public on the weekend that austerity measures were coming. Since then, top officials have been laying the groundwork for fuel price hikes.
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Oil Minister Hardeep Singh Puri said on Tuesday that Indian refiners are incurring substantial losses by keeping retail fuel prices unchanged. On the same day, Reserve Bank of India governor Sanjay Malhotra said at an event in Switzerland “it is just a matter of time” before some of the higher costs of fuel will be passed on to consumers.
The currency fell to a record low of 95.9587 per dollar on Thursday and is Asia’s worst performer so far in 2026. The rupee has surrendered all gains made after the RBI took aggressive measures to curb speculation in the currency.
Foreign investor outflows so far this year have already exceeded last year’s record US$19 billion. Sustained outflows, coupled with a swelling import bill as oil tops US$100 a barrel, could push India towards an unprecedented third straight year of balance of payments deficit, economists have said.
“Now we have come to a situation where curbing non-essential imports have become a necessity,” said Gaurav Kapur, an economist with IndusInd Bank Ltd. “Whenever such a situation arises, curbing gold import is always at the top of the list.”
The emergency measures are not unprecedented. Several countries in Asia, such as Vietnam and Thailand, have asked citizens to work from home to save on fuel and preserve dollars.
While consumer inflation in India remains below the central bank’s 4% target, data this week showed price pressures are growing as energy costs soar. The wholesale price index surged 8.3% in April from a year earlier, up from 3.88% in March.
The RBI has kept interest rates unchanged at 5.25% so far this year, although many economists expect it would need to tighten in coming months. Foreign exchange reserves slid to US$690.7 billion in May from a peak of US$728 billion in March.
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