India has more than doubled import duties on gold and silver to 15%, aiming to narrow its trade deficit and support the rupee, but industry officials warn the move risks reviving smuggling networks.

Summary:

• India raised import tariffs on gold and silver to 15% from 6%, comprising a 10% basic customs duty and a 5% agriculture infrastructure levy, according to government orders issued Wednesday
• The move is aimed at curbing overseas purchases of precious metals and reducing pressure on India’s foreign exchange reserves and trade deficit, per Reuters
• Prime Minister Narendra Modi urged citizens to refrain from buying gold for one year to help protect the country’s foreign exchange position, according to Reuters
• Industry officials warned the higher duties risk reigniting smuggling activity that had subsided following a tariff reduction in mid-2024, per Reuters citing trade sources
• Indian gold ETF inflows surged 186% year-on-year in the March quarter to a record 20 metric tons, according to the World Gold Council
• April gold imports fell to a near 30-year low after India began levying a 3% integrated goods and services tax on bullion imports, prompting banks to temporarily halt purchases, per Reuters

India has more than doubled import duties on gold and silver, lifting the effective tariff rate to 15% from 6% in a sweeping policy move aimed at reining in the country’s trade deficit and easing pressure on one of Asia’s weakest-performing currencies.

The new rate combines a 10% basic customs duty with a 5% Agriculture Infrastructure and Development Cess applied to all gold and silver imports. The decision, formalised through government orders issued on Wednesday, follows weeks of escalating concern in New Delhi over the pace of precious metals imports and their drain on India’s foreign exchange reserves.

The stakes are considerable. India is the world’s second-largest consumer of gold and meets almost all of its domestic demand through imports, making bullion a persistent and significant contributor to the country’s current account deficit. Gold demand has accelerated in recent months, driven by a sustained rally in prices and poor returns from equities over the past year, drawing a wave of investment-oriented buying that has pushed inflows into gold exchange-traded funds to record levels. In the March quarter alone, ETF inflows reached 20 metric tons, a 186% increase on the same period a year earlier, according to the World Gold Council.

Prime Minister Narendra Modi added political weight to the push on Sunday, publicly urging citizens to avoid purchasing gold for a full year as a gesture of support for the country’s foreign exchange position. The appeal underscored the degree of official concern about bullion’s impact on the balance of payments.

However, the policy carries meaningful risks. Industry officials and bullion market participants have warned that a tariff rate as high as 15%, applied to metal already trading at elevated prices, creates strong financial incentives for illegal imports. Smuggling had declined materially after India reduced duties in mid-2024, but dealers say grey market networks are likely to reactivate quickly under the new regime. One Mumbai-based bullion dealer noted that at current price levels, the margin available to smugglers would be substantial.

The concern is not without precedent. India has historically struggled to suppress unofficial gold flows when official import costs rise sharply, and any revival of the grey market would undermine both the trade data and the policy’s intended fiscal benefits.

The tariff increase comes after a turbulent few months for legitimate bullion trade. Earlier this year, the introduction of a 3% integrated goods and services tax on gold and silver imports prompted banks to halt purchases for more than a month, pushing April import volumes to a near 30-year low. Banks have since resumed buying following payment of the additional levy, but dealers say official import volumes are now likely to fall again in response to the latest duty increase.