Gold Shines for Switzerland
By Shivaji Sarkar
India is in a Gold loop. Swiss Refineries and Indian Consumers are weakening the Rupee. The country’s import appetite now threatens its macroeconomic stability. India’s external vulnerability widens with gold, gadgets and a slipping rupee.
The newly ratified India–EFTA Trade and Economic Partnership Agreement is expected to deepen trade and investment ties with Switzerland. Yet the irony is stark: India’s exports to Switzerland remain negligible. In 2024–25, India exported barely $1.51 billion worth of goods to Switzerland while importing $22.4 billion, generating one of its most lopsided bilateral trade deficits. The imbalance is driven almost entirely by gold, which forms the overwhelming bulk of Swiss exports to India. Over the last four years, trade with Switzerland has grown at a modest CAGR of 4.62 per cent, but the structure remains fundamentally skewed, reflecting a high-value, high-dependency import pattern and minimal Indian presence in Swiss markets.
This imbalance feeds into a much larger macroeconomic problem: India’s persistently large trade deficits and rapidly rising external debt, both of which exert continuous, structural downward pressure on the rupee. As imports surge—especially crude oil, gold, electronics, chemicals, medical devices, and other high-value consumer and industrial goods—the demand for dollars rises, weakening the rupee and widening the current account deficit. The deterioration in the balance of payments is no longer just a statistical challenge; it is actively shaping investor sentiment. A sustained CAD is often perceived as a sign of external vulnerability, discouraging long-term, “sticky” capital inflows that India desperately needs.
The numbers tell the story. India’s external debt climbed to $718 billion by December 2024—an increase of $69 billion from the previous year—and further to $747.2 billion by June 2025. This rising stock of foreign-currency liabilities amplifies the pressures on the rupee. With a heavier external repayment burden and limited export growth, the currency has come under persistent strain.
In 2014, when the NDA assumed office, the exchange rate stood at Rs 60.95 per dollar. Last week, it crossed Rs 90—despite strong headline GDP expansion. The currency slide is not symptomatic of weak domestic fundamentals; India’s growth remains robust by global standards. Instead, it reflects a fragile external account combined with weakening capital inflows.
Consumption Boom Has an External Cost
Foreign direct investment, once a bright spot, has been sluggish. Meanwhile, foreign portfolio investors pulled out $16 billion during the year, further amplifying the rupee’s decline. The depreciation then sets off a reinforcing loop: a weaker rupee makes imports costlier, fuels inflationary pressures, and complicates debt servicing for both the government and corporates holding dollar-denominated loans. Every notch of depreciation magnifies the rupee cost of repayment, intensifying fiscal and corporate stress. Such volatility inevitably erodes investor confidence, making capital flows even more fragile and amplifying the perception of risk.
Against this backdrop, the unchecked rise in non-essential imports is becoming economically untenable. India continues to import large volumes of gold, silver, consumer electronics, gadgets, luxury goods, footwear, plastics, furniture, and premium food items—products that do little to enhance productivity or support export competitiveness. Much of this consumption is driven by affluent urban households, yet the macroeconomic burden is borne by the entire economy.
Even recent attempts to curb imports through higher duties, Quality Control Orders (QCOs), and restrictions on specific electronics have yielded limited results, largely because domestic substitutes remain inadequate or uncompetitive.
Inconsistency on Gold
The policy inconsistency on gold is particularly striking. Despite being one of the biggest drains on foreign exchange, gold was conspicuously excluded from the latest round of selective duty hikes—much to the relief of the India Bullion and Jewellers Association. The bullion trade has deep historical roots in the Gujarati business community, with major refiners such as the Gujarat Bullion Refinery playing a central role. Switzerland, the world’s gold-refining hub, remains India’s dominant supplier. As long as gold imports continue unchecked, India’s current account deficit will remain under pressure.
Deficit with China
What makes this even more glaring is India’s worsening bilateral trade deficit with China. India does not import crude oil from China, yet its trade deficit with the country surged to an unprecedented $ 99 billion in FY25, driven largely by electronics, solar components, pharmaceuticals ingredients, and industrial machinery. China, despite repeated dialogues, remains reluctant to significantly increase imports from India, creating a structural imbalance that domestic policy has not been able to correct.
The combined effect of these trends is a widening trade deficit increasingly financed through external borrowing rather than export earnings. This trajectory is fundamentally unsustainable. Rising foreign debt—particularly short-term obligations—exposes India to global shocks, currency volatility, and sudden-stop risks, heightening the risk perception among global investors. The more India borrows to finance its consumption-heavy imports, the weaker the rupee becomes, creating a feedback loop that becomes progressively harder to escape.
It is time for the government to confront this reality with greater urgency. India needs a clear, assertive policy framework that links non-essential imports to export performance, ensuring that domestic consumption patterns do not erode macroeconomic stability. A phased strategy to expand export manufacturing, enhance competitiveness, and shift export composition toward high-value sectors is essential. India cannot indefinitely rely on discounted Russian oil or episodic portfolio inflows to cushion its external accounts.
Narrow Export Base
The broader challenge is structural and longstanding. India’s export base remains narrow and heavily dependent on low-value goods—pharmaceutical generics, textiles, petrochemicals, and agricultural products—while its import appetite, particularly for electronics, gold, and capital goods, continues to outpace domestic production capabilities. Without deliberate, targeted action, this gap will only widen, making the country more dependent on external financing.
The government must address three core imperatives with coherence and resolve: Restrict non-essential imports through calibrated, rules-based policy—not ad hoc duties that encourage smuggling and distort markets.
Rebuild export competitiveness, especially in electronics, machinery, precision engineering, and high-tech goods where India remains uncompetitive. Stabilize the severely eroded rupee by reducing reliance on external debt, boosting confidence in long-term capital inflows, and moderating the consumption pressures that drive import dependence.
India’s growth story remains compelling, but it cannot rest on GDP numbers alone. Unless the country reins in its consumption-driven import surge and realigns its trade strategy with long-term economic priorities, the burden on the rupee, the debt profile, and the country’s external stability will deepen. The time for incrementalism is over. India must act decisively to protect its economic foundations before the trade imbalance becomes an entrenched structural fault line. Luxury consumption is undermining India’s stability. — INFA