Key Takeaways:
India raised import tariffs on gold and silver to 15 percent from 6 percent, a significant step aimed at curbing overseas purchases of the metals to ease pressure on the nation's foreign exchange reserves.
"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, said.
The new structure consists of a 10 percent basic customs duty and a 5 percent Agriculture Infrastructure and Development Cess (AIDC), according to a government order. The move comes as the Indian rupee has dropped by over 5 percent since late February amid rising oil prices, with Brent crude hovering near $107 a barrel.
While the tariff hike aims to support the rupee, industry officials warned it could revive illegal smuggling. A Mumbai-based bullion dealer noted that "grey markets are likely to become active, as the incentives to bring in gold illegally are high."
The immediate market reaction was mixed, with spot gold falling 0.4 percent to $4,695.99 per ounce while spot silver rose 0.2 percent to $86.71, according to market data as of 0231 GMT. The precious metals markets are also contending with broader economic pressures, including a stronger-than-expected U.S. inflation report. Data showed U.S. consumer inflation's annual rate posted its largest gain in three years, with the headline number rising to 3.8 percent year-on-year, reducing the likelihood of Federal Reserve rate cuts in 2027.
The tariff increase follows a direct appeal from Prime Minister Narendra Modi for citizens to avoid gold purchases for a year to protect the country's foreign exchange reserves. India, the world's second-largest consumer of precious metals, meets nearly all its gold demand through imports. The government had already taken steps to slow imports by levying a 3 percent goods and services tax, which caused April imports to fall to a near 30-year low. The move comes after a period of strong investment demand, with inflows into India's gold exchange-traded funds surging 186 percent year-on-year in the March quarter to a record 20 metric tons.
This article is for informational purposes only and does not constitute investment advice.
