The reason was simple: India produces almost no gold and pays for imported gold in dollars. In 2025-26, it spent $72 billion on gold imports, up from $28.2 billion in 2019-20. This sharp jump has been putting pressure on the dollar-rupee exchange rate.
That’s the conventional argument given that the dollar rupee exchange rate is ultimately a price – which depends on the demand for and the supply of dollars. If the demand for dollars goes up and the supply doesn’t, the rupee loses value against the dollar – it weakens.
When India buys dollars to buy gold it increases the demand for dollars and weakens the rupee. A weaker rupee creates other problems given that India imports 90 per cent of the oil and 50 per cent of the natural gas that it consumes. It also imports a lot of fertiliser.
So, a weaker rupee pushes up energy prices, raising the cost of carrying out economic activity and, in turn, driving up prices across the economy – something the government wants to avoid. Which is why it has been trying to control the dollar-rupee exchange rate.
One way to ensure that the rupee doesn’t weaken, or weakens at a slower pace, is to increase the supply of dollars, something that the government doesn’t have much control over. But what it can do is to control the demand for dollars to some extent. This explains PM Modi’s appeal.
Indeed, India’s love for gold leading to the rupee losing value against the dollar is what the French economist Frédéric Bastiat called the ‘seen effect’ in economics. But as he elaborated, what matters more are the unseen effects, which aren’t easy to figure out.
So, what’s the unseen effect here? From April 2024 to May 2026, the foreign institutional investors (FIIs) have net sold Indian stocks worth over Rs 4 lakh crore or $44.2 billion. Of this around $10 billion has been sold since April 2026. As of March 2026, the FII ownership in stocks was at a 17-year low.
As Shankar Sharma, the founder of the AI company GQ FinXRay, wrote in January 2025 for moneycontrol.com: “When FIIs decide to sell, they need somebody to buy.”
So, where is the money financing FII selling coming from? The answer lies in India’s growing love for investing in stocks – both directly and indirectly. As per the Economic Survey, the share of stocks and mutual funds (MFs) in annual household financial savings has jumped from around 2 per cent in 2011-12 to over 15 per cent in 2024-25. It would have gone up further since.
A good proportion of this investment has been coming from retail investors buying stocks indirectly by investing in MFs through systematic investment plans (SIPs). The total money invested in SIPs has gone up from around Rs 1 lakh crore in 2019-20 to Rs 3.5 lakh crore in 2025-26. This money, along with retail investors investing directly in stocks, has been helping FIIs sell.
Further, FIIs are only a part of the story. Foreigners can also buy substantial stakes in Indian companies with the intent of business control or operational involvement, through the foreign direct investment (FDI) route.
Given that foreigners can invest money through this route, they can also sell their shares and take the money out of India. This is referred to as repatriation and has increased from $18.4 billion in 2019-20 to $53.6 billion in 2025-26.
Many loss-making startups which have listed on the stock market over the last few years had substantial investments by foreigners – read venture capitalists – through the FDI route. When such companies listed, these foreigners also sold a chunk of their investment.
Other than this, a few multinational companies (MNCs) have listed their Indian subsidiaries, allowing their owners to sell shares to Indian retail investors. So, here too retail investors have often provided the money that allowed the foreigners to sell.
When foreign VCs list startups or MNCs sell shares, they are paid in rupees. This money eventually flows back to their global headquarters, requiring the rupees to be sold for dollars and other foreign currencies, thereby weakening the rupee. This is the unseen effect that very few seem to be talking about.
India paid $72 billion for gold in 2025-26. FIIs sold stocks worth $19.7 billion and $53.6 billion was repatriated through the FDI route during the year. In total this works out to $73.3 billion, just slightly more than gold imports. So, the retail investors’ love for stocks allowed foreign investors to sell stocks at extremely high prices. This, too, has put pressure on the rupee.
Given this, let’s stop blaming just India’s gold obsession for the battered rupee. The other culprit hides in plain sight: our SIPs and love for investing in stocks has been financing a massive foreign exit, turning retail investors into unintended accomplices in weakening the rupee.
Or to put it bluntly: “Gold badnaam hua SIP tere liye.”
Vivek Kaul is an economic
commentator and a writer
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