Why has India sharply increased gold and silver import duty? – Firstpost

India has raised the effective import duty on gold and silver from 6 per cent to 15 per cent. This is one of the sharpest policy interventions in the precious metals sector in recent years.

The move is in response to growing concern within the government over rising import bills, pressure on foreign exchange reserves, and the weakening rupee.

The revised structure, which came into force on Wednesday (May 13, 2026) through Customs Notification No. 16/2026 issued by the Ministry of Finance, increases the Basic Customs Duty (BCD) on gold and silver from 5 per cent to 10 per cent and raises the Agriculture Infrastructure and Development Cess (AIDC) from 1 per cent to 5 per cent.

The move comes only days after Prime Minister Narendra Modi
publicly appealed to citizens to avoid buying gold for a year and reduce non-essential imports in order to conserve foreign exchange reserves.

The appeal was made at a time when India is facing the impact of elevated crude oil prices due to
the West Asian conflict involving the United States and Iran, and sustained pressure on the rupee.

The duty increase is expected to raise domestic prices of gold and silver, reduce imports of the two metals, and help narrow India’s trade deficit.

However, industry officials have also warned that sharply higher tariffs may weaken demand, increase stress on jewellers and bullion traders, and revive gold smuggling networks that had subsided after tariff cuts in 2024.

What exactly has changed?

Under the earlier structure, imports of gold and silver attracted a 5 per cent Basic Customs Duty and a 1 per cent Agriculture Infrastructure and Development Cess,
taking the total effective duty to 6 per cent.

The revised structure now stands as follows:

The notification also revised duties on jewellery findings and some industrial inputs linked to the sector.

At the same time, concessional rates in the range of 4.35-5 per cent have been offered for specific recycling and recovery categories, including spent catalysts and ash containing precious metals, indicating that the government wants the industry to increasingly depend on recycling and domestic recovery instead of fresh imports.

The increase in duties immediately triggered a sharp reaction in the commodities market. Domestic gold futures climbed 7.2 per cent to 164,497 rupees per 10 grammes, while silver futures surged 8 per cent to 301,429 rupees per kilogramme in early trade on Wednesday after the announcement.

Why has the govt raised import duty on gold & silver?

### Concern over rising imports

India is among the world’s largest consumers of gold, but it produces very little domestically and
therefore depends almost entirely on imports to meet demand.

Every increase in gold imports translates into a larger outflow of US dollars from the country. Policymakers are increasingly worried about this outflow at a time when external pressures on the Indian economy are intensifying.

Reports indicate that gold imports accounted for nearly 9-10 per cent of India’s total import bill during 2025-26. In absolute terms, India spent a record $71.98 billion on importing gold to meet domestic consumption needs.

Demand for gold
has remained elevated over the past year not only because of cultural and festive buying but also due to investment demand. Uncertainty in equity markets and strong gains in gold prices encouraged more investors to move money into precious metals and related investment products.

According to the World Gold Council, inflows into India’s gold exchange-traded funds (ETFs) rose 186 per cent year-on-year during the March quarter, reaching a record 20 metric tonnes.

The government’s calculation appears straightforward:
making imported gold and silver more expensive could discourage discretionary purchases and reduce the overall import bill.

### Pressure on foreign exchange reserves

India’s dependence on imported crude oil and imported gold means that large amounts of dollars leave the country every month.

With crude oil prices rising amid the Iran-related crisis, the government appears keen to ensure that foreign exchange reserves are preserved for essential imports.

Modi had
recently urged citizens to reduce fuel consumption, postpone foreign travel, and delay gold purchases in the national interest.

His remarks were widely interpreted by market participants as a sign that the government was becoming increasingly concerned
about external vulnerabilities and the balance-of-payments position.

The government had already begun taking steps in recent weeks to slow gold imports. Authorities imposed a 3 per cent Integrated Goods and Services Tax (IGST) on gold and silver imports, a move that reportedly caused banks to temporarily stop imports for more than a month.

The impact of those measures was visible almost immediately. April gold imports reportedly fell to levels not seen in nearly three decades before banks resumed purchases after adjusting to the new IGST regime.

Analysts and bullion dealers now expect import volumes to decline further following the latest customs duty hike.

The broader objective behind the policy is to reduce the amount of dollars leaving India through non-essential imports and thereby provide greater stability to the country’s external finances.

### Supporting the rupee

The import duty increase is also being viewed as part of the government’s attempt to stabilise the rupee, which has weakened sharply against the US dollar in recent weeks. The rupee recently depreciated by 40 paise to close at a fresh all-time low of 95.68 against the dollar.

Higher imports of commodities such as crude oil and gold increase demand for dollars in the domestic foreign exchange market. When demand for dollars rises sharply, the rupee tends to weaken further.

Forex market participants reportedly interpreted the prime minister’s comments on reducing imports and conserving fuel as an indication that India could face sustained pressure on its balance of payments if global crude oil prices remain elevated for a prolonged period.

Market experts cited by PTI said that both high crude oil prices and a strong US dollar were continuing to weigh heavily on the Indian currency.

### Current account deficit & trade deficit

A trade deficit arises when a country imports more goods and services than it exports. India’s large import dependence on crude oil, electronics, and gold means that the import bill can rise sharply during periods of global uncertainty or price spikes.

Gold imports, in particular, are often viewed by economists as “non-productive” imports because they do not directly contribute to industrial output or export generation in the same way as machinery or manufacturing inputs.

Reuters reported that the increase in duties could help reduce India’s trade deficit even if it dampens precious metal demand in the short term.

The government also appears to believe that reducing speculative and investment-driven gold purchases could help channel financial savings into more productive sectors of the economy.

Some analysts estimate that even a 30-40 per cent reduction in gold imports could potentially save India between $20 billion and $25 billion annually in foreign exchange outflows.

What does a higher duty mean for consumers?

The immediate effect of the duty hike will be visible in retail prices.

At the time the reports were filed, gold prices in India were hovering around Rs 15,475 per gramme for 24-carat gold, while silver prices were trading in the range of Rs 278,000 to Rs 290,000 per kilogramme.

The revised duty structure substantially raises the landed cost of imported gold before GST, jeweller margins, and making charges are added.

For instance:

The increase is expected to affect both investment-oriented buyers and consumers purchasing jewellery for weddings and festivals.

The government’s approach appears aimed at discouraging two key trends:

Experts believe the higher prices could encourage consumers to:

• Delay jewellery purchases

• Exchange old gold for new jewellery instead of buying fresh gold

• Shift toward gold ETFs and digital gold

• Increase recycling and reuse of existing household gold

• Push toward recycling and monetisation

Industry representatives have repeatedly argued that India already possesses vast quantities of idle gold in households, temples, and investments.

Instead of depending heavily on imports, many in the industry believe that recycling and monetisation of domestic gold reserves can provide a long-term solution.

The concessional duty rates introduced for recycling and recovery categories in the latest notification also reflect the government’s attempt to gradually push the sector toward domestic sourcing and circular use of precious metals.

What does this mean for the jewellery & bullion industry?

While the government views the measure as necessary for macroeconomic stability, the jewellery and bullion industry fears the impact on business activity.

Higher import costs are expected to increase working capital requirements for jewellers because inventories will become more expensive to maintain. Bullion traders also anticipate weaker consumer footfalls as retail prices rise sharply.

Industry representatives have warned that prolonged weakness in jewellery demand could affect employment in a sector that supports millions of artisans, craftsmen, traders, and workers across India.

The revised duties on jewellery findings and related inputs are also expected to increase manufacturing costs for some businesses.

One of the biggest concerns within the bullion industry is the possibility of gold smuggling making a comeback.

India has historically witnessed spikes in illegal gold inflows whenever import duties widened sharply. Industry officials noted that smuggling activities had reduced after tariff cuts introduced in 2024, but the latest jump to 15 per cent could again make illegal imports financially attractive.

Bullion dealers warned that wider duty gaps may encourage:

• Illegal routes through neighbouring countries

• Increased cash-based transactions

• Growth in grey market operations

• Additional enforcement pressure on customs authorities and the Directorate of Revenue Intelligence (DRI)

Industry voices, including officials from the India Bullion and Jewellers Association, cautioned that such risks cannot be ignored if the price difference between legal and illegal imports widens.

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With inputs from agencies