India’s 7.8% economic growth has triggered a new question, mostly online: if the economy is growing this fast, why is Prime Minister Narendra Modi asking Indians to cut back on overseas travel, foreign weddings and unnecessary gold purchases?
Zoho founder Sridhar Vembu has offered an explanation, saying India still needs to conserve foreign exchange even as its economy expands.
Modi on Tuesday highlighted India’s 7.8% growth and called for greater self-reliance. He urged Indians to avoid foreign holidays and weddings abroad and said gold should not be bought unless necessary.
Vembu responded to an X post by an user, who asked: “If economy is growing at 7.8% why is the PM asking us not to travel abroad, not to buy gold, not to have foreign weddings etc.? And why is the share market almost static or down? Any economists explain???”
Vembu said the answer lies in the experience of East Asian economies that went through rapid growth while also trying to conserve foreign exchange.
“Let me explain: East Asian nations (Japan, Taiwan, South Korea and later China) all went through a phase of rapid GDP growth combined with the need to conserve foreign exchange. Here is why that happens,” Vembu said.
Vembu said India continues to depend on imports for energy and technology. He argued that faster economic growth can actually increase the need for these imports.
“Our economy is growing at a good rate but we still have an import dependence, in both energy and in technology. In fact, the faster the economy grows, the greater the need for both energy and technology inputs,” the Zoho founder noted.
That dependence makes exports important, but Vembu pointed out that India’s export industries themselves still rely on imported technology.
“To balance that import dependence, we have to export more and our exports are surging. However, even our exports need advanced technological inputs (precision machines, materials, CPUs, GPUs, advanced software etc) that we need to import today,” he said.
Vembu said India’s dependence on advanced technology cannot disappear quickly.
“Catching up in all of these areas takes time, often measured in decades. We have made a good start but we need time,” he explained.
He cited Japan, Taiwan, South Korea and China as examples of economies that experienced rapid growth while working to reduce their dependence on foreign resources and technology.
“Look at how long it took East Asia to catch up with the West. Their economies were growing rapidly even as they worked hard to conserve foreign exchange,” Vembu said. “That is exactly what our government is trying to do.”
Vembu said India’s current situation is similar to that of a company that is expanding rapidly but needs to preserve capital to fund that expansion.
“Once we gain competence in all the advanced technlogies, and achieve energy independence through renewable energy that we develop the technology for, we would no longer need to conserve foreign exchange,” he said.
He added: “The situation is similar to a fast growing company that needs capital to grow. So it has to conserve capital to invest in growth. Our nation needs to conserve foreign exchange likewise.”
The argument comes a day after Modi’s fresh appeal for Indians to adopt a more “swadeshi” approach to consumption, including reducing overseas travel, avoiding destination weddings abroad and limiting non-essential gold purchases.
Chief Economic Adviser V Anantha Nageswaran has also pointed to the role of India’s foreign-exchange cushion in supporting growth. India’s strong external position and the recent increase in foreign-currency inflows provide a buffer against external shocks, helping the economy sustain momentum even when the rupee and global markets face pressure.
