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Informist, Wednesday, May 13, 2026

 

By Pratiksha

 

NEW DELHI – The government's decision to increase the import duty on gold and silver may not resolve the rupee's troubles. The Indian currency, which has been hitting successive record lows, may derive little comfort from the measure, market participants said. 

 

The government late Tuesday imposed a 10?sic customs duty and 5% Agriculture Infrastructure and Development Cess on gold and silver imports, raising the effective import tax to 15% from 6%. The announcement came after Prime Minister Narendra Modi Sunday urged citizens to conserve the country's foreign exchange reserves, as India finds itself in an increasingly tough spot amid the ongoing energy crisis stemming from the war in West Asia.

 

"The rupee has not reacted to the gold import duty hike announcement. Measures like this are insufficient to stem the rupee's depreciation," Nitin Agarwal, head of trading at ANZ Bank India, said. "We need to see the demand reduction that stems from the gold import duty hike."

 

Despite the hike in gold import duty, the rupee fell to a record low of 95.8000 a dollar Wednesday. The currency has depreciated over 5% against the dollar since the war in West Asia broke out on Feb. 28, which has pushed up crude oil prices. The price of Brent crude oil has jumped nearly 50% since the onset of the war as peace negotiations between the US and Iran remain in limbo.

 

Market participants and economists do not expect the import duty hike to materially reduce the country's gold import bill, given the increased international prices. Gold prices have risen over 8% so far this year to $4,702 per ounce.

 

Market participants do not expect the increase in gold import duty to significantly affect the current account deficit either. The current account deficit is expected to widen to 1.5-2.4% of GDP in the financial year 2026-27 (Apr-Mar), primarily driven by higher crude oil prices because of the war in West Asia.

 

The government's Chief Economic Adviser V. Anantha Nageswaran expects India's current account deficit to widen to over 2% of GDP in FY27. India's current account deficit was $30.1 billion, or 1.0% of GDP, in Apr-Dec.

 

"While the duty hike may indeed have a dampening effect on volume demand (based on historical experience) amid elevated international gold prices, we expect the gold import bill to rise further in FY27 (+$15 billion vs FY26), offsetting the volume decline," Barclays said in a note.

 

India's gold imports rose to $71.98 billion in FY26, up 24% on year, with the share in total imports rising to 9.3% from 8.0% in FY25. Meanwhile, silver imports rose to $12.05 billion in FY26, up almost 150% on year.

 

Market participants also highlighted that, despite the import duty hike, demand for gold is likely to remain intact, as it retains its appeal as a safe-haven asset, especially in times of global uncertainty. "We may see some impact on the investment demand of gold, but actual physical demand may not reduce much solely due to the duty hikes," Agarwal said.

 

Geojit Investments Ltd.'s Head of Commodity Research Hareesh V. said investors continue to prefer digital gold or gold exchange-traded funds as these instruments avoid the risks associated with physical holdings, such as smuggling-driven price distortions, storage costs, and liquidity issues.

 

Market participants expect the rupee to remain under pressure unless crude oil prices decline, with most expecting it to fall to 96.50-97.00 in the near term. "The currency will get impacted only by the overall import bill. A negligible fall in gold import will not have much impact," Madan Sabnavis, chief economist at Bank of Baroda, said.

 

"Hike in gold import duty may have an impact on rupee in a medium- to long-term basis, not immediately," Sabnavis said. He expects the rupee to weaken to 97-98 a dollar by the end of 2026.

 

Following the rarely used foreign exchange curbs on banks' net overnight open positions and now the import duty hike on bullion, market participants expect policymakers to announce more such measures in the near term to defend the Indian currency and shield the economy from external headwinds.

 

Reserve Bank of India Governor Sanjay Malhotra Tuesday said an increase in retail fuel prices by the Centre is "just a matter of time" if the war in West Asia is prolonged and oil prices remain high.

 

ANZ's Agarwal also called for reforms aimed at attracting foreign inflows, saying a review of capital markets taxation could be worth considering for foreign portfolio investors. Some market participants expect unconventional measures, such as a foreign currency non-resident deposit window by the central bank, to attract inflows. So far in 2026, FPIs have pulled out nearly $22 billion from Indian markets, more than double the $10.92 billion withdrawn in 2025.

 

Market participants expect the exchange rate to remain volatile going forward, not only because of developments related to the West Asia war but also because of the measures the government may deploy to address the situation.  End

 

US$1 = INR 95.70

 

Edited by Rajeev Pai

 

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