India significantly raises gold and silver import tariffs to 15%, suppressing imports to boost the rupee

India significantly increased import tariffs on gold and silver from 6% to 15%, aiming to shrink the trade deficit and boost the rupee. However, industry insiders warn that this move may suppress compliance demand while reigniting precious metals smuggling activities.

According to Reuters, the Indian government issued an order on Wednesday to levy a 10% basic tariff on gold and silver imports and an additional 5% Agricultural Infrastructure and Development Tax (AIDC), raising the effective tax rate from 6% to 15%.

This is the strongest step in a recent series of measures India has taken to tighten precious metals import policies. Previously, India had started imposing a 3% integrated goods and services tax (IGST) on gold and silver imports, leading multiple banks to suspend imports for more than a month, and in April import volumes fell to a nearly 30-year low.

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, and nearly all gold consumption depends on imports. After the sharp increase in tariffs, industry insiders expect compliant import volumes to fall again, directly suppressing demand for physical gold.

Surendra Mehta, National Secretary of the Indian Gold and Silver Jewellery Association, said:

“The tariff increase is in line with market expectations. The government intends to reduce the current account deficit, but against the backdrop of gold and silver prices already being high, this could further suppress demand.”

As of the time of publication, gold/USD spot was down 0.41%, while silver/USD spot was up 0.54%. The incident has not yet caused a noticeable impact on the precious metals market.

Policy aims to strengthen the rupee; the industry worries about a rise in smuggling risk

The tariff hike comes as India’s foreign exchange reserves face pressure and the rupee continues to weaken. The rupee is one of Asia’s worst-performing currencies, and heavy gold imports have intensified foreign exchange consumption and widened the trade deficit.

Last Sunday, Indian Prime Minister Modi publicly called on the public to avoid buying gold for a year to help protect foreign exchange reserves. This rare statement underscores the authorities’ high level of concern about foreign exchange conditions.

India’s demand for gold investment has recently heated up noticeably. Data from the World Gold Council last month showed that in the first quarter of this year, net inflows into India’s gold ETFs surged 186% year over year, reaching a record 20 metric tons—driven by ongoing gains in gold prices and negative stock-market returns in India over the past year, fueling safe-haven and investment demand.

Industry insiders are concerned that India’s move to raise precious metals tariffs could bring smuggling risks back. India lowered gold tariffs in mid-2024, after which smuggling activity had eased for a time.

With tariffs rising sharply again, it may reopen profit opportunities for illegal channels. A precious metals trader at a private bank in Mumbai who requested anonymity told Reuters: “The grey market is likely to become active again. At current gold price levels, smugglers can earn substantial profits.”

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