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India, the world’s second-largest gold consumer, has raised the import tax on gold and silver to 15% in a bid to curb precious-metals imports and ease pressure on foreign exchange reserves.
On May 13, India increased the duty on gold and silver from 6% to 15%. The government said the move is aimed at reducing the current account deficit, though it may dampen demand in a market where gold and silver prices are already high.
Under the new rules, the Indian government imposes a basic import tax of 10% plus a 5% Infrastructure Development and Agricultural Cess (AIDC) on gold and silver, bringing the total effective tax rate to 15%.
Surendra Mehta, secretary-general of the Indian Gems and Jewellery Association, said the higher duty could affect demand because gold and silver prices are already elevated.
India currently imports nearly all domestic gold demand. Demand has risen sharply, particularly for investment purposes, as gold prices have climbed and stock markets have underperformed over the past year.
In recent weeks, India has taken additional steps to limit gold imports. On May 10, Prime Minister Narendra Modi urged citizens to limit gold purchases for a year to protect foreign exchange reserves.
Earlier, the government imposed an integrated GST (IGST) of 3% on imported gold and silver. Many banks suspended imports for more than a month, and April gold imports fell to the lowest in nearly 30 years. Banks later resumed imports after agreeing to pay the IGST of 3%, but traders said imports could continue to decline following the new tax hike.
Despite efforts to curb imports, investment demand has remained strong. According to the World Gold Council, inflows into gold ETFs in India in the quarter ended March rose 186% year-on-year to a record 20 tonnes.
Industry sources warned the tax increase could revive gold smuggling after activity cooled following tax cuts in mid-2024.
A precious metals trader at a private bank in Mumbai said the black market could return because incentives to smuggle remain substantial. The trader noted that current price levels could allow smugglers to earn significant profits.
The higher duty is expected to help reduce the trade deficit and support the rupee, which has been among the Asian currencies that have weakened most recently. However, the policy may also reduce demand for gold and silver given the already high price environment.
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