The Centre on Wednesday increased the import tariff on gold and silver from 6 per cent to 15 per cent, days after Prime Minister Narendra Modi urged citizens to avoid buying gold for a year amid mounting economic pressure linked to the Iran war.
According to a government order issued on Wednesday, India has imposed a 10 per cent basic customs duty along with a 5 per cent Agricultural Infrastructure and Development Cess (AIDC) on imports of the precious metals.The move is aimed at reducing imports, narrowing the trade deficit and supporting the rupee, which has emerged as one of Asia’s weakest-performing currencies.
The decision comes despite a government source telling Reuters earlier this week that there were no immediate plans to raise import duties following Modi’s public appeal. The latest step signals a sharper push by the government to manage foreign exchange reserves and curb non-essential imports during a period of heightened global uncertainty.
Modi Urged Citizens To Avoid Gold Purchases
Prime Minister Narendra Modi on Sunday appealed to Indians to refrain from purchasing gold for one year in a bid to help conserve the country’s foreign exchange reserves. He also encouraged people to reduce petrol and diesel consumption and resume work-from-home and remote activities wherever possible.
The appeal came as India faces economic stress triggered by the ongoing Iran war and the resulting volatility in global energy markets. Rising crude oil prices and pressure on the rupee have increased concerns over the country’s import bill and overall external balance.
India remains the world’s second-largest consumer of gold and the largest consumer of silver. Since domestic production is limited, the country depends heavily on imports to meet demand, making bullion imports a significant factor in the trade deficit.
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Rising Prices And Investment Demand Fuelled Imports
Gold demand in India has remained strong in recent months, especially for investment purposes. The rally in bullion prices combined with weak returns from equities over the past year has encouraged more investors to shift towards gold-backed assets.
According to the World Gold Council, inflows into India’s gold exchange-traded funds (ETFs) surged 186 per cent year-on-year during the March quarter, reaching a record 20 metric tonnes. The rise reflected growing investor appetite for safe-haven assets amid market uncertainty.
The increase in tariffs is expected to dampen demand further, particularly at a time when gold and silver prices are already trading at elevated levels. Higher import costs are likely to translate into steeper retail prices for consumers across the country.
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Earlier Measures Had Already Hit Imports
India had already begun tightening gold imports in recent weeks before Wednesday’s tariff hike. The government introduced a 3 per cent integrated goods and services tax (IGST) on gold and silver imports, prompting banks to temporarily suspend imports for more than a month.
The impact was visible in April, when gold imports dropped to near a 30-year low. Banks later resumed imports after complying with the IGST requirement, but bullion dealers now expect imports to decline again following the latest increase in customs duties.
Market participants believe the combined effect of higher taxes and elevated prices could significantly cool demand in the coming months, particularly among retail buyers and jewellers preparing for the festive and wedding seasons.
