Import duties on gold and silver sharply increased in a bid to curb foreign exchange outflow and reduce pressure on India’s trade deficit
India has sharply increased import duties on gold and silver, raising the effective tariff from 6% to 15% in a move aimed at reducing pressure on the country’s foreign exchange reserves and narrowing the trade deficit.
According to government orders issued on Wednesday, imports of gold and silver will now attract a 10% basic customs duty along with a 5% Agriculture Infrastructure and Development Cess (AIDC).
The move comes days after Prime Minister Narendra Modi urged citizens to reduce non-essential imports, including gold purchases, as global tensions and rising crude oil prices continue to strain India’s forex reserves.
India is the world’s second-largest consumer of precious metals and depends heavily on imports to meet domestic demand. Officials believe the higher duties could help reduce overseas purchases and support the rupee, which has been under pressure in recent months.
Industry representatives, however, warned that the steep hike may impact demand and revive illegal smuggling networks.
“As expected, the government has raised duties to curb the current account deficit. However, this could affect demand, as gold and silver prices were already elevated,” said Surendra Mehta, National Secretary of the India Bullion and Jewellers Association.
Demand for gold in India has surged over the past year, particularly among investors seeking safer assets amid volatility in equity markets. According to the World Gold Council, inflows into India’s gold exchange-traded funds (ETFs) jumped 186% year-on-year in the March quarter, touching a record 20 metric tonnes.
The government had already begun tightening imports in recent weeks by imposing a 3% Integrated Goods and Services Tax (IGST) on gold and silver imports. The measure temporarily disrupted imports, causing April imports to fall to a near 30-year low.
Although banks later resumed imports after adjusting to the new tax structure, bullion dealers expect the latest duty hike to once again slow import volumes.
Market experts also cautioned that higher taxes could encourage smuggling activities. “Grey markets are likely to become active, as the incentives to bring in gold illegally are high,” said a Mumbai-based bullion dealer associated with a private bank.
The Centre’s latest move signals a stronger push towards conserving foreign exchange reserves at a time of global economic uncertainty and rising geopolitical tensions.
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