Government increased import duty

India on Wednesday increased import duty on gold and silver to 15 percent from 6 percent in efforts to curb foreign purchases of metals and ease pressure on the country’s foreign exchange reserves.

Higher tariffs 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 warned that higher import taxes could lead to a resumption of smuggling, which was reduced after India cut tariffs in mid-2024.

The government has imposed 10 per cent basic customs duty and 5 per cent Agriculture Infrastructure and Development Cess (AIDC) on gold and silver imports, increasing the effective import tax from 6 per cent to 15 per cent.

“As expected, the government has increased tariffs to curb the current account deficit. However, this may impact demand as gold and silver prices were already high,” said Surendra Mehta, national secretary of the India Bullion and Jewelers Association.

Prime Minister Narendra Modi on Sunday urged people to avoid buying gold for a year to help conserve foreign exchange reserves. India fulfills almost all its gold consumption through imports.

The demand for gold has increased in India, especially for investment purposes, amid the recent rally in prices and negative returns from equities over the last year.

The World Gold Council last month said investments in India’s gold exchange-traded funds (ETFs) rose 186 per cent year-on-year to a record 20 MT in the March quarter.

India has been trying to curb gold imports in recent weeks and started imposing a 3 percent integrated goods and services tax (IGST) on gold and silver imports, forcing banks to halt imports for more than a month.

As a result, April imports fell to a nearly 30-year low. Bullion dealers said banks have resumed imports after paying 3 per cent IGST, but now imports are likely to decline again after the increase in import duty.

“The gray market is likely to be active, as the incentives to bring in gold illegally are high. At the current price level, smugglers can make significant profits,” said a Mumbai-based bullion trader with a private bank, declining to be named.