The government is reviewing imports of non-essential items and goods where import dependence is low, among other measures to curtail the country's import bill and encourage domestic capacity creation. This comprehensive approach, likely to be discussed at an interministerial meeting on the West Asia crisis scheduled next week, represents a significant escalation from previous targeted measures. The Centre has asked ministries to come up with a list of items where imports can be restricted, with officials emphasizing that any measures will be carefully calibrated, timebound, and will not disrupt supply chain critical for manufacturing or any essential commodity. Commerce Minister Piyush Goyal has advised importers to "avoid bringing in products that can be sourced domestically," highlighting the government's push to protect the rupee amid external pressures.
India has historically imported gold from Arab countries using dollars, contributing to an annual trade deficit and rupee depreciation. The government has now moved decisively to address this challenge, with import duty on gold and silver hiked to 10% from 5% and the Agricultural and Infrastructure Development Cess raised to 5% from 1% with effect from May 13. As per Yes Bank's analysis, these measures have lifted the total effective import duty to 15%, alongside import quantity restrictions of 100 kilogrammes on manufacturers under the Advance Authorisation scheme. The bank expects import volumes to fall sharply to around 420 tonnes in FY27, from an estimated 720 tonnes in FY26. The Centre last week hiked customs duty followed by curbs on imports to curtail gold import bill, with officials noting that "there are many items that are imported despite domestic production, which is adding further strain to the rupee."
The analysis examines gold's role beyond being just a precious metal, highlighting it as both an emotional and economic challenge for India. According to Yes Bank, gold import savings alone are estimated at around USD 23 billion, with projected gold imports now valued at USD 57 billion against an earlier estimate of USD 80 billion. The country faces significant economic consequences from its gold import practices, including trade deficit expansion and currency depreciation pressures. The report suggests that gold has evolved into more than a commodity, creating complex economic dynamics for the Indian economy. Officials emphasize that "there is no point of speculating, but any measure will be carefully calibrated, timebound, and will not disrupt supply chain critical for manufacturing or any essential commodity."
India's trade deficit widened to USD 28.4 billion in April, up sharply from USD 20.7 billion in March, driven by a surge in oil and gold imports. However, merchandise exports posted their strongest year-on-year growth in recent months, with headline exports rising 13.8% year on year to USD 43.6 billion in April. Petroleum product exports led the charge, surging 85.1% month on month, while gems and jewellery, electronic goods and iron ore also registered sequential gains. Non-oil exports grew a more modest 0.7% month on month to USD 34 billion, pointing to still-fragile underlying export momentum outside the energy complex. The rupee closed at a new record low of 96.5 a dollar on Tuesday, down from 96.34 on Monday, adding to balance of payments concerns amid portfolio outflows and tepid foreign direct investment.
Despite the improved current account outlook, Yes Bank has revised its current account deficit forecast down to 1.5% of GDP for FY27 from a prior estimate of 1.8%, assuming Brent crude at USD 85 per barrel. The balance-of-payments deficit is now anticipated at USD 30 billion in the base case. The bank expects the USD/INR exchange rate to reach 97.00–97.50 by the middle of the year, though it cautioned that the capital account will remain a source of concern. Gold import restrictions alone are insufficient to close the balance-of-payments gap, with the broader challenge lying in attracting adequate capital flows to fund the deficit. Officials note that "there are several items which are cheap (to import) but of substandard quality, which was flagged from time to time."
