India Significantly Increases Import Tariff on Gold and Silver to 15%

India has significantly increased its import duties on gold and silver from 6% to 15%, a move aimed at compressing the trade deficit and bolstering the rupee, but the industry warns that this could suppress legitimate demand while reigniting precious metal smuggling activities.

According to Reuters, the Indian government issued a decree on Wednesday, imposing a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Tax (AIDC) on imports of gold and silver, raising the effective tax rate from 6% to 15%.

This is the most forceful step in a series of recent measures by India to tighten the import of precious metals. Prior to this, India had begun levying a 3% Integrated Goods and Services Tax (IGST) on the import of gold and silver, leading to a suspension of imports by several banks for over a month and imports falling to a near 30-year low in April.

The tariff increase may have a significant impact on the global precious metals market. India is the world's second-largest consumer of precious metals, with gold consumption almost entirely reliant on imports. With a substantial increase in tariffs, industry insiders predict a further decline in legal imports, directly suppressing demand for physical gold.

Surendra Mehta, the national secretary of the All India Gem and Jewellery Domestic Council, stated:

"The increase in tariffs is in line with market expectations, and the government aims to compress the current account deficit. However, with gold and silver prices already high, this move could further suppress demand."

As of press time, gold/USD spot fell by 0.41%, and silver/USD spot rose by 0.54%. The event has not yet had a significant impact on the precious metals market.

This tariff increase occurs against the backdrop of pressure on India's foreign exchange reserves and a continued weakening of the rupee. The rupee is one of the worst-performing currencies in Asia, and the substantial import of gold exacerbates foreign exchange consumption and trade deficits.

Indian Prime Minister Modi publicly called for the people to refrain from buying gold for a year last Sunday to help protect foreign exchange reserves. This rare statement highlights the authorities' high level of concern for the foreign exchange situation.

Investment demand for gold in India has recently heated up significantly. Data from the World Gold Council last month showed that in the first quarter of this year, inflows into India's gold ETFs surged by 186% year-on-year, reaching a record 20 metric tons, driven by the continuous rise in gold prices and the demand for safe-haven and investment driven by negative returns in the Indian stock market over the past year.

Industry insiders are concerned that India's increase in precious metal tariffs may bring back the risk of smuggling. India had previously reduced gold tariffs in mid-2024, after which smuggling activities had somewhat subsided.

The significant rebound in tariffs this time may open up the profit space for illegal channels once again. An unnamed Mumbai private bank precious metals trader told Reuters: "The grey market is likely to become active again. At the current gold price level, smugglers can reap quite considerable profits."