Sridhar Vembu explains why PM modi is asking Indians to skip buying gold and travel abroad

Sridhar Vembu said India's 7.8 percent GDP growth does not remove the need to conserve foreign exchange. He linked Prime Minister Narendra Modi's appeal for restraint on overseas spending to India's reliance on imported technology and energy.

In Short

• Vembu said faster growth also raises demand for imported energy and technology
• He noted exports often rely on foreign machinery, chips, materials and software
• East Asian economies conserved foreign exchange during long periods of rapid expansion

India's economy grew 7.8 percent in the April-June quarter, but Zoho founder Sridhar Vembu says strong GDP growth does not mean the country can stop conserving foreign exchange.

Vembu was responding to a question about why Prime Minister Narendra Modi is asking Indians not to travel abroad, buy gold unnecessarily or hold weddings overseas despite India's strong economic growth.

"If economy is growing at 7.8 percent why is the PM asking us not to travel abroad, not to buy gold, not to have foreign weddings etc.," he wrote.

Vembu's explanation centres on India's continued dependence on imports. He said the country still relies on foreign supplies for both energy and advanced technology. As the economy grows faster, its requirement for these inputs also increases.

This is where conserving foreign exchange becomes important. Spending on imported goods such as gold, or overseas activities such as foreign travel and weddings, involves money being spent outside India. Vembu's point is that India needs to balance such outflows with the foreign exchange it earns through exports.

Why India needs to conserve foreign exchange

Vembu said India's exports are increasing, but exports themselves can require imported technology. He listed precision machines, materials, CPUs, GPUs and advanced software among the inputs India still needs to import.

In other words, simply increasing exports does not eliminate India's dependence on foreign technology. Vembu said developing these capabilities domestically will take time, potentially decades.

He compared India's situation with Japan, Taiwan, South Korea and later China. These countries, he said, experienced rapid economic growth while also having to conserve foreign exchange as they built their technological and industrial capabilities.

"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 India has made a start but needs time to develop advanced technologies and achieve greater energy independence through renewable energy developed domestically.

"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."

What PM Modi said after 7.8 percent GDP growth

Modi's appeal came as he welcomed India's latest GDP growth figures and renewed his call for an Atmanirbhar, or self-reliant, Bharat.

"Many congratulations to the people of the country. 7.8% growth has filled the country with happiness. I congratulate the countrymen for their power of resolve, for their hard work; this is a reflection of collective strength," the Prime Minister said in an Instagram video from Kyrgyzstan.

Modi also referred to the global situation, including wars, disrupted supply chains and the lack of stability since the Covid-19 period, while pointing to India's continued economic growth.

Vembu compared India's situation with that of a fast-growing company that needs to conserve capital for investment. He said the country similarly needs to conserve foreign exchange while it develops the technology and energy capabilities that it currently has to source from abroad.

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