In a significant policy move to conserve foreign exchange reserves and stabilize the weakening rupee, the Indian government has sharply hiked gold and silver import duties to 15% from 6%, according to official notifications issued on Wednesday. The revised structure includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC), aimed at discouraging non-essential precious metal imports and narrowing India’s widening trade deficit.
Key Highlights
- India hiked gold and silver import duties to 15% to curb imports and protect forex reserves.
- Higher tariffs may reduce demand but revive smuggling risks as bullion prices remain elevated globally.
The duty hike comes days after Prime Minister Narendra Modi urged citizens to avoid gold purchases for the next year to help preserve India’s foreign exchange reserves amid elevated crude oil prices and growing geopolitical uncertainty in West Asia. India, the world’s second-largest consumer of precious metals, imports nearly all of its gold requirements, making bullion demand a major contributor to external account pressure.
Higher Duties Likely to Weigh on Demand
The sharp increase in tariffs is expected to dampen domestic bullion demand, particularly at a time when gold prices are already hovering near record highs. Industry experts believe the move could reduce investment-led buying, which had surged over the past year amid weak equity market returns and strong safe-haven demand.
Surendra Mehta, National Secretary, India Bullion and Jewellers Association (IBJA), said, “The government has raised duties to curb the current account deficit. However, this could affect demand, as gold and silver prices were already elevated.”
Data from the World Gold Council recently showed that inflows into India’s gold exchange-traded funds (ETFs) surged 186% year-on-year during the March quarter, reaching a record 20 metric tonnes, reflecting strong investor preference for precious metals amid broader market volatility.
Imports Had Already Fallen to Near 30-Year Low
India had already begun tightening bullion imports in recent weeks by imposing a 3% Integrated Goods and Services Tax (IGST) on gold and silver imports. The tax prompted major banks to temporarily halt bullion imports for more than a month, causing April imports to plunge to their lowest levels in nearly three decades.
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Although imports resumed after banks adjusted to the tax structure, market participants expect the fresh customs duty hike to trigger another slowdown in import volumes.
