In a move to safeguard foreign exchange reserves, the Indian government has increased the import duty on gold and silver from 6% to 15%. As the world's second-largest gold consumer, India aims to reduce inbound shipments and alleviate pressure on its foreign exchange reserves, which have been strained by the economic fallout of the US-Iran conflict.
Why Gold and Silver Imports Are Under Scrutiny
The government views precious metal imports as a significant contributor to the current account deficit, particularly because these imports are considered non-essential compared to critical commodities. Although import volumes of gold and silver have remained relatively stable, a sharp rise in global prices has inflated the import bill, increased foreign exchange outflows, and added pressure on the rupee. India's expenditure on gold and silver imports reached a record $84 billion in the fiscal year ending March, up from $35.5 billion a decade ago.
India is also the world's largest consumer of silver, which is used not only in jewellery, bars, and coins but also in industries such as solar power and electronics. Over the past year, silver demand has been increasingly driven by investment interest rather than traditional consumption, with inflows into silver exchange-traded funds hitting an all-time high.
Does a Higher Duty Curb Demand?
Historical data indicates that higher duties may not significantly reduce demand. Despite domestic gold prices surging by 443% over the past decade, annual consumption has remained stable between 666 and 803 metric tonnes. During 2012-2013, when import duties were raised from 2% to 10%, gold demand stayed resilient. According to a Reuters analysis, after absorbing a 76.5% jump in gold prices in 2025, consumers are unlikely to cut purchases significantly due to an additional 9% tariff increase.
For many Indian households, gold is viewed as a long-term store of value and a hedge against inflation and currency depreciation. In rural areas, farmers often rely on gold as a financial safety net during emergencies. Gold-backed loans are also among the fastest ways for millions to obtain funds, with banks and finance companies disbursing credit within minutes.
Which Section Will Be Affected?
Jewellery accounts for nearly three-fourths of India's total gold consumption, with the remainder coming from investments like coins, bars, and gold ETFs. Jewellery purchases had already slowed due to elevated prices, and further increases are likely to weaken short-term buying while encouraging a shift toward lower-carat products.
Investment-driven demand behaves differently. Investors typically buy gold expecting prices to rise, while Indian buyers have historically treated the metal as a safe-haven asset and inflation shield. Higher import duties increase domestic prices, potentially strengthening gold's image as an appreciating asset and attracting additional investors who fear missing out on future gains, according to the Reuters report.
In the March quarter, investment demand for gold exceeded jewellery consumption for the first time as investors turned to the metal amid weak equity returns. Inflows into domestic gold ETFs have continued to rise and are expected to remain robust.
Impact on Smuggling
The rally in gold prices had already improved profit margins for grey market operators, and the latest duty hike has widened those margins to nearly 18%, compared with around 9% earlier. Unofficial gold imports remained above 100 tonnes until 2023 but dropped sharply after India reduced tariffs in 2024. Such imports declined to 69.2 tonnes in 2024 from 156.1 tonnes in 2023, and fell further to 20.4 tonnes in 2025.
The profit margin from smuggling one kilogram of gold has now climbed to a record Rs 30 lakh, increasing incentives for illegal operators in the grey market.
