Gold, Silver Imports Get Costlier! India Hikes Duty To 15% In Midnight Action

On the back of increasing imports and an attempt to safeguard the dwindling foreign exchange reserves, the government of India has increased the import duty of gold, silver and other precious metals to 15% from 6% at midnight. This development takes place just a few days after Prime Minister Narendra Modi asked citizens to avoid gold purchases for a year and to limit the non-essential import of items given the West Asia crisis and increasing crude oil prices. Experts predict that the short-term effects will be decreased jewellery demand, resurgence in the number of smuggling routes and alteration in the trade routes of bullion.

Imports of gold turn out expensive overnight

To curb India’s increasing foreign exchange outgo, the Centre has raised the import duty on gold and silver to 15% from the original 6%. According to the Central Board of Indirect Taxes and Customs (CBIC), they have notified this change, which will take effect at midnight. The import duty would constitute a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC). The new rates came into force at midnight.

The higher duties will also apply to imports of platinum and jewellery and industrial imports linked to precious metals. Gold imported from the UAE under the fixed-quantity quota system will now be subject to the same duty structure, doing away with the earlier concessional treatment.

This comes at a time when India is under pressure on its foreign exchange reserves due to high crude oil prices and geopolitical disruptions arising out of the US-Iran conflict in West Asia.

Why did the government raise the gold import duty?

A key concern for policymakers in times of global uncertainty is forex management, given that India imports most of its gold requirements and 85% of its energy needs.

This is the latest move a day after Prime Minister Narendra Modi on Sunday appealed to citizens to refrain from buying gold, cut fuel consumption, avoid destination weddings abroad and limit non-essential foreign travel.

“Global supply chains were already under stress after the Covid pandemic and Ukraine conflict, and the ongoing tensions in West Asia have worsened economic risks further,” said PM Modi.

The government sees the rise in duty as part of a broader austerity drive to curb non-essential imports and ease pressure on the rupee.

The bullion market may face heat

India is the world’s second-largest consumer of precious metals, and analysts say the sharp increase in import duties could hurt demand in the coming months.

“As expected, the government has raised ​duties to curb the current account deficit. However, this could affect demand, as gold and silver prices were already elevated,” Surendra Mehta, national secretary at the India Bullion and Jewellers Association, told Reuters.

The bullion market had already been disrupted after the government imposed a 3 per cent integrated goods and services tax (IGST) on imports of gold and silver, forcing banks to stop imports temporarily for more than a month.

Imports had resumed after banks began paying the IGST, bullion dealers said, but volumes could be hit sharply again with the latest increase in customs duties.

April’s gold imports had already dropped to a near 30-year low on the back of earlier curbs and rising prices.

Will gold smuggling come back?

Industry insiders fear the sharp increase in import duties could lead to a resurgence of illegal gold inflows into the country.

Grey markets are likely to spring up, as the incentives to bring in gold illegally are high. “Grey markets are likely to become active, as the incentives to bring in gold illegally are ⁠high. At ​current price levels, smugglers could make significant profits,” said a Mumbai-based bullion dealer at a private bank, who declined to be named as he was not authorised to speak to the media.

Smuggling had decreased after India lowered tariffs in mid-2024, but market players expect illicit channels to come into their own if domestic prices drift too far above international benchmarks.

Gold ETF demand had been increasing already

Gold investment demand in India has been strong even at record high prices, interestingly.

Inflows into India’s gold ETFs increased by 186% year-on-year to a record 20 metric tonnes during the March quarter, the World Gold Council said. In the last year, the bull rally in bullion prices and the weak equity market performance have driven most investors towards the yellow metal.

What changes with the new notification?

The latest CBIC notification also revises duties on jewellery “findings” — small components used in jewellery manufacturing, such as hooks, clasps, clamps, pins and screw backs.

Gold and silver findings to attract 5% customs duty now

5.4% customs duty on platinum findings

Gold, silver and platinum imports now face an effective duty structure of 15%

The notification modifies earlier customs notifications issued in 2018 and 2021. 

Also Read: PM Modi Urges Indians to “Not Buy Gold” for One Year Amid West Asia War – What Does It Mean for Gold Prices, Demand, Forex and the Rupee?