India hikes gold, silver import duties to 15% to cut demand, save reserves

India raised import tariffs on gold and silver to 15% from 6% on Wednesday, more than doubling the levy in an effort to curb purchases and reduce pressure on the country's foreign exchange reserves.

The move targets rising demand for precious metals that has contributed to a widening trade deficit and a weakening rupee, one of Asia's worst-performing currencies this year.

What are India's new gold and silver import duties?

The new 15% rate comprises a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess.

The tariff hike is designed to make gold and silver imports significantly more expensive and cool demand in the world's second-largest precious metals market. India imports nearly all of the gold it consumes domestically.

Why did India raise gold import duties?

The tariff increase is part of broader efforts to contain India's current account deficit amid rising imports and elevated global commodity prices.

Prime Minister Narendra Modi on Sunday urged citizens to avoid buying gold for a year to help preserve the country's foreign exchange reserves.

The demand for gold had risen sharply as investors sought safer assets following weak equity market returns and a sustained rally in bullion prices.

According to the World Gold Council, inflows into India's gold exchange-traded funds surged 186% year-on-year during the March quarter, reaching a record 20 metric tons.

Authorities had already introduced a 3% integrated goods and services tax on gold and silver imports weeks earlier, temporarily causing banks to halt imports for more than a month. Gold imports in April subsequently dropped to nearly a 30-year low.

What impact will the gold tariff hike have on India's market?

Surendra Mehta, national secretary at the India Bullion and Jewellers Association, said the duty increase could affect demand since gold and silver prices were already elevated before the hike.

Bullion dealers told Reuters that the latest tariff increase is likely to trigger another decline in imports. Although banks resumed imports after paying the earlier goods and services tax, the cumulative effect of higher duties is expected to weigh on demand.

Could higher gold duties increase smuggling in India?

Analysts warned that elevated import duties may stabilize India's external balances in the short term but could encourage unofficial trade if domestic prices rise significantly above international rates.

A Mumbai-based commodities analyst said India has historically seen a rise in unofficial channels whenever import duties become too high. The government may gain some short-term relief on reserves, but sustained high tariffs risk distorting the market over time.