The rich must do their bit—the middle class and poor mustn't bear the brunt of India's austerity drive

Yet, achieving the required level of austerity might be difficult because of entrenched cultural habits as well as certain sections of Indian society justifying extravagance through inter-generational entitlement and privilege. In the end, though, like always, the middle-class and poor may have to bear the brunt.

Signs of distress can be seen in external sector data. Balance-of-payments data for the January-March quarter is not yet available, making it difficult to assess the effect of the Iran war (the first shots were fired on the last day of February).

But some data available from RBI till February—negligible net foreign direct investment (FDI), negative foreign portfolio investment—already suggest an impending storm.

Net FDI was weak all through 2025-26, signifying that while existing foreign investors have been cashing out, even corporate India has been investing overseas. What about the current year? Early indicators show continuing stress in both FDI and FPI inflows.

The one source of succour for India’s external accounts has been remittances. While remittances for 2025-26 might still demonstrate some growth, the current year is likely to see some pressures emerging after many Gulf employees were forced to return home.

Trade data for fiscal 2025-26 also has stress written all over it. While exports have barely grown over the past 3-4 years, India’s merchandise trade deficit (the excess of goods imports over goods exports) for 2025-26 was at $333.2 billion, widening 17.5% from 2024-25.

The largest item in the bill is crude and petro-products. Hence, the PM’s appeal that citizens manage petro-demand through the use of public transport, car-pooling or work-from-home. He also reduced the size of his cavalcade, hoping others would follow his example.

But another item has stubbornly resisted all demand management attempts. Of the four items that make up over 60% of the import bill (see graph), imports of gems and jewellery (which include gold and gold jewellery) jumped 23% last year.

The PM has pointedly requested citizens to postpone gold purchases so that foreign exchange can be saved. The government followed this up by hiking customs duty on gold, silver and platinum imports. However, given the yellow metal’s immutable role in the lives of ordinary Indians, it is uncertain whether the recent measures will dampen demand substantially.

Gems and jewellery imports have jumped 40% over the past two years, coinciding with US President Donald Trump’s tenure in office and the global turmoil that ensued.

This column has eschewed the idea of gold as an asset, given its unproductive nature, but ordinary Indians may have found the metal a source of stability during the recent turbulence. Some financial experts with official government roles advocated that investors allocate a part of their portfolio to gold.

It now remains to be seen whether the PM’s austerity request, combined with higher customs duties, can turn the tide. Historically, gold smuggling tends to thrive during such conditions.

What can actually help is if certain entitled sections of Indian society set some examples. For example, when was the last time you saw an industrialist, a top banker or a leading politician flying commercial? Ministry of civil aviation data for the year ending March 2025 shows there were 122 non-scheduled operation permit holders, owning a total of 433 aircraft. These operators ferried a total of 164,934 passengers during that year, across both domestic and international destinations.

If the government is indeed serious about managing fuel demand, it should first increase aviation fuel costs for non-scheduled operators.

At a broader level, serious introspection is needed about corporate India investing the nation’s foreign exchange overseas. Simultaneously, there has to be realization that the Indian corporate sector is doing so because consumer demand has stagnated in India. Capacity utilization for the 1,000-odd units surveyed by RBI has been frozen around 75% for a prolonged period.

The core problem is low or non-existent real wage growth, and the current crisis could add to the unemployment numbers. The solution, therefore, has to be austerity for the rich and a safety net for the vulnerable.

The author is a senior journalist and author of ‘Slip, Stitch and Stumble: The Untold Story of India’s Financial Sector Reforms’ @rajrishisinghal