Gold Import Duty Hiked To 15% After Modi Warns On Forex Outflow

The government has raised import tariffs on gold and silver to 15% from 6% in a major move aimed at reducing precious metal imports and easing pressure on India's foreign exchange reserves amid the ongoing global energy and geopolitical crisis.

According to a Reuters report, the higher duties are expected to curb demand in India, the world’s second-largest consumer of precious metals, while helping narrow the trade deficit and support the rupee.

The move comes days after Prime Minister Narendra Modi urged citizens to avoid gold purchases, reduce fuel consumption and limit unnecessary foreign exchange spending amid disruptions caused by the West Asia conflict.

The Prime Minister had also appealed to offices and citizens to adopt "Covid-era" practices such as work-from-home, virtual meetings and car-pooling to conserve fuel and reduce pressure on the economy.

Gold, Silver Prices Hit Upper Circuit

The sharp increase in import duties triggered a strong rally in domestic bullion prices on Wednesday.

Silver prices on the Multi Commodity Exchange (MCX) hit their 6% upper circuit limit at ₹2.95 lakh per kg, while gold prices also surged to the 6% upper circuit at ₹1.62 lakh per 10 grams.

In the international market, spot silver rose 1% to $87.40 per ounce, while spot gold traded near $4,713.39 per ounce. US gold futures for June delivery climbed 0.7% to $4,721.80 per ounce.

Analysts said the tariff hike, combined with elevated geopolitical uncertainty and sticky US inflation, has strengthened safe-haven demand for precious metals globally.

Jewellery Stocks Extend Losses

Despite the surge in bullion prices, jewellery stocks remained under heavy pressure as investors worried about weaker consumer demand following the government's push to reduce gold consumption.

Shares of Kalyan Jewellers led the decline, falling over 5%, while Sky Gold and Diamonds also dropped more than 5%.

Titan Company slipped over 1%, while PN Gadgil Jewellers traded lower along with other jewellery stocks.

Industry officials also warned that sharply higher duties could revive gold smuggling, which had reduced after tariff cuts introduced in mid-2024.

Forex Pressure And Rupee Weakness

The government's move comes at a time when India's external sector is facing rising pressure due to elevated crude oil prices and a weakening rupee.

On Tuesday, the rupee touched a record low of 95.75 against the dollar before closing at 95.63.

Chief Economic Advisor V Anantha Nageswaran said preventing further rupee weakness has become one of the "central macroeconomic imperatives" for the current fiscal year.

Speaking at the Confederation of Indian Industry Annual Business Summit, Nageswaran said the crisis has evolved beyond geopolitics into a direct macroeconomic stress test for India, affecting inflation, exchange rates and the broader external sector.

India's foreign exchange reserves declined by $7.79 billion to $690.69 billion during the week ended May 1, reflecting growing pressure on the economy.

Why Gold Imports Matter

India imports nearly all of its gold requirements, consuming around 700-800 tonnes annually while domestic production remains negligible.

Gold imports surged to a record $72 billion in FY26, up 24% from $58 billion in FY25, and now account for nearly 9% of India's total import bill.

Unlike industrial imports, gold contributes relatively little to manufacturing output or exports, while requiring substantial dollar outflows.

Commodity experts said the government's latest measures should primarily be viewed as an attempt to manage imports and stabilise the external sector.

"PM Modi’s remarks on delaying gold purchases should be viewed primarily from the perspective of India’s macroeconomic stability and import management," said Jateen Trivedi, Vice President and Research Analyst for Commodities and Currency at LKP Securities.

"India is one of the world's largest gold importers, and during periods of elevated crude oil prices and global uncertainty, high gold imports put additional pressure on the country’s trade deficit and the rupee," he said.

According to Trivedi, discouraging non-essential imports becomes an important strategy at a time when policymakers are attempting to stabilise the rupee and manage rising external sector risks.

Industry Fears Smuggling May Return

While the government's move is aimed at curbing imports and protecting macroeconomic stability, industry officials warned that sharply higher import duties could revive gold smuggling activity, which had declined after tariff cuts introduced in mid-2024.

Higher import duties generally widen the price gap between domestic and international gold markets, making illegal imports more profitable.

India has historically witnessed spikes in gold smuggling whenever import duties were raised sharply, particularly during periods of high domestic demand and elevated global prices.

Market participants said the impact of the duty hike on jewellery demand could become more visible in the coming months, especially during the festive and wedding seasons.