India raises gold, silver tariffs to 15% to curb imports after PM Modi's call to cut purchases

Higher duties expected to help narrow India's trade deficit and support the rupee

India has raised import tariffs on gold and silver to 15% from 6%, government orders said on Wednesday, as part of ⁠efforts to curb overseas purchases of the metals and ease pressure on the ⁠country's foreign exchange reserves.

The higher duties could dampen demand in ‌the world's second-largest consumer of ​precious metals, although they may help narrow India's trade deficit and support the rupee, one of Asia's worst-performing currencies.

However, industry officials warned higher import taxes could revive smuggling, which had eased after India cut tariffs in mid-2024, according to Reuters.

The government has imposed a ​10% basic customs duty ⁠and a 5% Agriculture Infrastructure and Development Cess on gold and silver imports, taking the effective import tax to 15% from 6%.

"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," said Surendra Mehta, national secretary at the India Bullion and Jewellers Association.

Prime Minister ‌Narendra Modi on Sunday urged people to avoid gold purchases for a year to help ⁠protect foreign exchange reserves. India meets almost all of its gold consumption through imports.

Gold demand, particularly for investment purposes, has ‌risen in India amid a recent rally in prices and ‌negative returns from equities over the past year.

Inflows into India's gold ‌exchange-traded funds (ETFs) surged 186% year-on-year in the March quarter to a ‌record 20 tonnes, the World Gold Council said last month.

India has been trying to curb gold imports in recent weeks and began levying a 3% integrated goods and ⁠services tax (IGST) on ⁠gold and silver imports, prompting banks to halt imports for more than a month.

As a result, April imports fell to a near 30-year low. Banks have since resumed imports after paying the 3% IGST, but imports are now likely to fall again following the increase in import duties, bullion dealers said.

"Grey markets are likely to become active, as the incentives to ​bring in gold illegally are high. At current price levels, smugglers could ​make significant profits," said a ​Mumbai-based bullion dealer at a private bank, who declined to be named as he was not authorised ​to speak to the media.

(With Reuters inputs)