Modi’s Appeal to Indians for Restraint Reflects a More Uncertain World

Energy security, foreign exchange and geopolitical risk are once again shaping national policy

Samayala Sami

5/5/20263 min read

Grand building reflected in a calm pool of water
Grand building reflected in a calm pool of water
• GEOPOLITICAL ANALYSIS • REPORT

Modi’s Appeal to Indians for Restraint Reflects a More Uncertain World

0.7%

of India's GDP goes abroad on account of expenditure.

Energy security, foreign exchange and geopolitical risk are once again shaping national policy

The Return of Economic Resilience

Therefore, the message from Modi was not only one of austerity, but it also indicated a strong shift toward increasing the economic resilience of the economy. From a global perspective, more and more countries consider their economic programs based on their security. That is, whether it be supply chain issues, energy, food supply or strategic resource issues that cannot be moved quickly, countries are not just viewing these things as purely market issues, they are also viewing them as part of their commitment to their respective national preparedness programs; with the pandemic, the war in Ukraine and the spillover effects of the ongoing fragmentation of the geopolitical landscape, we have all seen just how fast outside shocks can impact the domestic economic stability of a country. Countries across Asia and Europe are taking steps to respond to these challenges; this includes reassessing energy security, industrial capabilities, and dependence on outside sources. These rethinkings, which would likely have been considered outside the norm ten years back, are coming at the expense of unrestricted global integration, which was commonly thought to be the ultimate means to achieve economic success and stability for all nations.

The Bottomline

All this does not necessarily indicate an imminent crisis, but a new mindset appears to be emerging among governments. The majority of nations are now preparing themselves for a future that will likely be more unstable, more expensive, and less predictable than was true of the period of peak globalisation. From this perspective, Modi’s appeal consists of more than just fuel and energy conservation. Rather, his comments indicate a growing awareness that the continuity of the global economy has become inseparable from geopolitics.

Understanding the growing intersection between geopolitics and economic security is essential to navigating a world where energy, trade and national resilience are increasingly inseparable.

Prime Minister Narendra Modi's recent call to Indians to conserve energy, delay all unnecessary purchases, and practice discipline over their consumption for one year sounded odd at first. But there was a larger economic reason behind his message. India is aware of its vulnerability from being dependent on energy, and as the global environment becomes increasingly unstable, there will be many parts of the world that do not have the same level of stability that others do. What sounded like advice was also economic signalling. The Prime Minister’s timing was also interesting. The global energy market is still very sensitive to instability in the Middle East, and shipping interruptions and geopolitical problems are continuing to affect shipping routes; this, therefore, puts additional pressure on fuel prices.

Why Energy Dependence Still Matters

For India, where 90% of its crude oil comes from imports, these geopolitical shocks have a serious direct impact on the economy. Oil prices have an impact on much more than just fuel costs. Significant and sustained increases in oil prices can increase the current account deficit (which is the difference between a country’s exports and imports), weaken the rupee, lead to higher levels of imported inflation and put pressure on foreign exchange reserves. In uncertain times, governments tend to be more cautious of vulnerabilities from outside, and large import-dependent economies like India tend to feel this need for cautiousness more.

Gold, Foreign Exchange and Economic Stability

In this regard, Modi’s statements regarding restraining excessively consuming things we need or putting off our purchase of gold are particularly noteworthy as India remains one of the largest gold importing countries in the world concerning wealth (such as the money to buy a home and invest) and the cultural norm of using gold to create wealth and secure your family’s future, whilst using a very expensive foreign currency to purchase gold imports creates a lot of foreign exchange outflows. Therefore, during periods of global instability, discouraging excessive imports of gold can also form part of an overall strategy for conserving foreign exchange and maintaining macroeconomic stability.

85%

of India's crude oil is imported.