India Doubles Gold and Silver Import Tariffs to 15%: What's Behind the Move?

On Wednesday (May 13), the Indian government issued an order raising import tariffs on gold and silver from 6% to 15%.

India imposes a 10% basic customs duty on gold and silver imports, plus a 5% agricultural infrastructure and development tax, bringing the effective import tax rate from 6% to 15%.

Analysts believe this move aims to curb overseas purchases, ease pressure on foreign exchange reserves, and support the rupee, amid rising energy prices and Middle East tensions impacting the economy.

With oil prices continuing to climb, pressure on India's foreign exchange reserves and the rupee has intensified. Prime Minister Modi recently called on citizens to reduce spending, particularly on fuel, overseas travel, and gold consumption, as these items significantly contributed to India's widening import bill.

Surendra Mehta, national secretary of the India Gem and Jewellery Association, stated, "The tariff increase was expected after Modi's remarks." He expects this could reduce gold demand in one of the world's largest gold consumer markets by approximately 10%.

Mehta added: "Raising tariffs can immediately ease the government's pressure. If the government wants to stop the rupee from falling overnight, this is the only way."

Since the Middle East conflict erupted at the end of February, the already weak Indian rupee has declined 5%. Despite multiple interventions by the Reserve Bank of India, the exchange rate has fallen below 95.5 rupees per dollar.

During the first month after the conflict began, India's dollar foreign exchange reserves decreased by $40 billion. For the fiscal year ending March 31, India's gold imports reached $72 billion, a nearly 25% increase year-over-year; while silver imports surged nearly 150% to $12 billion during the same period.

Despite rupee weakness, India remains a significant contributor to global gold demand, according to a report by the World Gold Council published in April.