Government orders said on Wednesday that India has raised customs duties on imports of gold and silver to 15% from 6%, as part of efforts to curb purchases of the metals from abroad and ease pressure on the country’s foreign exchange reserves.
Higher duties could dampen demand in the world’s second-largest consumer of precious metals, although they could help narrow India’s trade deficit and support the rupee, one of Asia’s worst-performing currencies.
However, industry officials have warned that higher import taxes could revive smuggling, which declined after India reduced tariffs in mid-2024.
The government imposed a 10% basic customs duty and a 5% infrastructure and agricultural development tax on gold and silver imports, raising the effective import tax to 15% from 6%.
“As expected, the government has raised duties to curb the current account deficit. However, this may impact demand, as gold and silver prices were already high,” said Surendra Mehta, national secretary, Indian Bullion and Jewelery Association.
Prime Minister Narendra Modi on Sunday urged people to avoid buying gold for a year to help protect foreign exchange reserves. India meets almost all of its gold consumption through imports.
Demand for gold, especially for investment purposes, has risen in India amid recent price hikes and negative returns from stocks over the past year.
Inflows into gold exchange-traded funds (ETFs) in India rose 186% year-on-year in the March quarter to a record high of 20 metric tons, the World Gold Council said last month.
Read also: ‘Reduce use of foreign products’: PM Modi’s new appeal after petrol, gold and WFH push
India has been trying to limit gold imports in recent weeks and began imposing a 3% integrated goods and services tax on gold and silver imports, prompting banks to halt imports for more than a month.
As a result, April imports fell to their lowest level in almost 30 years. Banks have since resumed imports after paying the 3% GST, but imports are now likely to fall again after import duties were increased, bullion traders said.
“Gray markets are likely to be active, as the incentives to bring in gold illegally are high,” said a bullion trader at a private bank in Mumbai, who requested anonymity because he was not authorized to speak to the media. “At current price levels, smugglers can make huge profits.”
