India Raises Gold and Silver Import Tariffs to 15% to Support Rupee

India raised import duties on gold and silver to 15 percent from 6 percent on Wednesday, a move aimed at curbing imports to narrow the trade deficit and support a weakening rupee, one of Asia's worst-performing currencies.

"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,” said Surendra Mehta, national secretary at the India Bullion and Jewellers Association.

The new tariff structure includes a 10 percent basic customs duty and a 5 percent Agriculture Infrastructure and Development Cess (AIDC). The move follows a recent 3 percent goods and services tax that had already caused April's import volumes to hit a near 30-year low. Gold imports reached a record $72 billion in the fiscal year 2025-26.

The government's action, which follows a public appeal from Prime Minister Narendra Modi to halt gold buying for a year, aims to protect dwindling foreign exchange reserves. However, the move could backfire by reviving a parallel grey market, as the significant price difference may incentivize large-scale smuggling, an issue that had subsided after a tariff cut in 2024.

Smuggling Risks Resurface

Industry experts warn that the new 15 percent duty creates a significant arbitrage opportunity. A Mumbai-based bullion dealer noted that at current prices, the incentive to bring in gold illegally is high, potentially undermining the government's efforts to control the official trade balance. India's history with high gold tariffs has been linked to sophisticated smuggling networks. The previous tariff cut in mid-2024 had successfully curtailed illegal imports, a trend this new policy may reverse.

Trade Deficit and Rupee Pressure

The policy comes as India's trade deficit widened to $333 billion in the last fiscal year, with gold imports accounting for over 9 percent of total imports. The current account deficit rose to $13.2 billion, or 1.3 percent of GDP, in the December quarter. With gold consumption almost entirely met by imports, the government hopes that reducing the outflow of foreign currency for the precious metal will provide much-needed support for the rupee and ease pressure on the country's foreign exchange reserves.

This article is for informational purposes only and does not constitute investment advice.