The Indian government has increased customs duties on gold and silver to 15% from 6% and raised platinum import duties to 15.4% from 6.4% to curb rising imports and preserve foreign exchange. According to The Alley for Indian Chartered Accountants, this decision reflects a clear macroeconomic intent to reduce gold imports and conserve foreign exchange. The revised structure comprises a 10% basic customs duty (BCD) and a 5% Agriculture Infrastructure and Development Cess (AIDC), taking the effective tax on gold and silver imports to 15%. India's gold imports rose 24% to a record $71.98 billion in FY26, up from $58 billion in FY25, while import volumes fell modestly to 721 tonnes. Gold and silver now account for roughly 10-11% of India's merchandise imports, making them a significant contributor to current account deficit (CAD) pressures after crude oil. The latest increase follows a similar pattern from July 2022, when the government raised basic customs duty on gold to 12.5% from 7.5%, taking total import taxes including cess to around 15%.
Despite the policy intervention, experts warn that India's gold consumption remains deeply entrenched in cultural practices and savings habits. As reported by Business Standard, Madan Sabnavis, chief economist at Bank of Baroda, noted that while higher duties may reduce formal imports temporarily, they do not fundamentally alter demand. Akhil Somani from Eureka Stock & Share Broking Services emphasized that formal imports may fall, but the grey market is likely to expand again. The core challenge lies in gold's role as both a cultural asset and household savings instrument, making demand relatively resistant to taxation. According to Barclays analysis, gold import demand had already begun weakening due to high prices, with gold import volumes on a 12-month rolling basis remaining lower year-on-year since August 2025. March 2026 gold imports were down 35% year-on-year, although February volumes had temporarily surged about 120%. For many Indian households, gold serves as a trusted store of value, emergency backup, and a crucial component of weddings and festivals, making it difficult to reduce demand even with higher prices and duties.
The government's duty hike comes amid mounting external pressures including rising crude oil prices, falling forex reserves, and heavy capital outflows linked to growing global tensions. As reported by Barclays, despite the higher duties, the gold import bill could rise by another $15 billion in FY27 compared with FY26 as elevated international prices outweigh weaker demand. The report noted that if gold demand remains relatively inelastic and prices stay elevated, the measure may do little to narrow the trade deficit. India's current account deficit is projected at 1.6% of GDP in FY27, with weakening capital inflows intensifying broader balance of payments pressures. The brokerage warned that weakening capital inflows are potentially leading to a third straight year of sizeable deficits and continued stress on the rupee. According to Live Mint, analysts expect the duty hike to make bullion imports costlier, pushing up jewellery prices and investment demand, potentially reviving smuggling activities while creating opportunities for investors.
The duty hike may provide only limited support to the rupee due to its sensitivity to oil prices and capital flows amid current economic pressures. According to Barclays, a 10% decline in oil prices typically leads to around 0.5% appreciation in the rupee against the US dollar, assuming other factors remain unchanged. The report estimated the higher import duty could add around 6 basis points to May CPI inflation and nearly 10 basis points by June under the revised CPI series, where jewellery and precious stones carry a combined weight of 1.13%. Foreign exchange reserves had fallen to around $690.7 billion in early May, with the effective reserve buffer lower by more than $100 billion after accounting for the Reserve Bank of India's net short dollar forward position. The RBI has intervened in both spot and forward markets and is considering additional measures, including the possible use of state-run lenders to issue foreign currency bonds to attract capital inflows.
India's gold-import challenge reflects a broader policy dilemma requiring simultaneous management of CAD, rupee stability, household savings behaviour, and cultural consumption patterns amid current economic pressures. According to Aditi Nayar, chief economist at Icra, while higher gold duties may modestly reduce imports, they are unlikely to fully offset broader external pressures, particularly from oil. The government must balance these competing priorities while encouraging households to shift from physical bullion to financial gold products, monetising existing domestic gold stocks through gold deposit schemes and recycling to reduce fresh import requirements. Barclays retained its year-end forecast of 96.8 for the rupee against the US dollar, warning that risks are skewed towards the currency reaching that level earlier than expected as external pressures persist. The increase in gold duties is not a revenue-raising measure but a macroeconomic step aimed at cooling gold demand, making imports more expensive, and protecting foreign exchange reserves during a period of heightened geopolitical uncertainty linked to ongoing global tensions.
