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Informist, Wednesday, May 13, 2026

 

By Abhijit Doshi and Ashutosh Pati

 

MUMBAI – After remaining in denial mode, the government resorted to what was widely expected. Tuesday, it raised import duty on gold and silver to 15% from 6?rlier. The immediate impact will, of course, be a fall in imports and a slight hit to jewellery demand, which is already reeling under pressure from the high price of gold. Market participants believe Indian consumers may accelerate the exchange of old gold jewellery for new while some see a revamp of the gold monetisation scheme.

 

In a notification issued late Tuesday, customs duty on gold and silver imports was increased to 10% and the agriculture infrastructure and development cess was increased to 5%. In the Budget for the financial year 2024–25 (Apr-Mar), customs duty on gold and silver was reduced to 6% from 15%. On Tuesday, the government also increased the import duty on platinum to 15.4% from 6.4%.

 

Demand for gold jewellery may fall by 5-7% while overall demand for the yellow metal may decline by 10%, Surendra Mehta, national secretary of the India Bullion and Jewellers Association, told Informist.

 

Incidentally, the market was hardly surprised by the announcement. Prime Minister Narendra Modi had Sunday urged citizens to reduce fuel consumption and avoid non-essential purchases such as gold to reduce India's import bill and conserve foreign exchange. This came in the backdrop of various related challenges that the country's economic managers are staring at following the US-Iran war: inflation, supply disruptions leading to shortages, pressure on foreign exchange reserves, rising current account deficit and worsening balance of payments, depreciation of the rupee, and more. With no end in sight to the war and the status of the Strait of Hormuz still uncertain, the challenges are only becoming more demanding. And Tuesday's announcement may have just been the first in a series of policy measures.

 

Gold being the second largest item of import after crude oil, it needed to be addressed, in the government's view. India on average imports about 850 tonnes of gold every year. This includes 250-300 tonnes for jewellery, around 200 tonnes for bars and coins, and the rest to be exported again, according to Nitin Kedia, national general secretary of the All-India Jewellers & Goldsmith Federation. Kedia expects imports for jewellery to fall nearly 50% to 150-200 tonnes in 2026.

 

Some of the people Informist spoke to believe the import duty hike may have only a short-term impact on demand. Chirag Sheth, principal consultant for India at global precious metals research consultancy Metals Focus, said in the near term there may be some impact, but in the long term, import duties tend to have little impact on demand. At best, some discretionary purchases may go down, he said.

 

Given the high gold prices, recycling is mentioned as an option for consumers. While some people may have resorted to recycling--converting old jewellery into new--this is not a new trend. According to Sheth, this has been going on for a couple of years now. He does not see a sharp or sudden rise in recycling of gold.

 

"More old jewellery will come in the market which will further reduce CAD (current account deficit) and falling rupee," Mehta said. About 50% of India's jewellery demand is currently met through old gold exchange and recycling.

 

"The government's recent measures to reduce bullion imports had already impacted demand. Earlier, authorities imposed a 3% integrated GST (goods and services tax) on imports, causing banks to temporarily halt shipments and pushing April gold imports to a near 30-year low. With the latest tariff hike, imports are expected to slow further in the coming months," Amit Gupta of Kedia Advisory said in a note.

 

However, according to the Kedia Advisory note, import demand for jewellery consumption had already declined nearly 20% on year as high prices discouraged discretionary purchases. Industry participants also cautioned that higher import duties could revive unofficial trade channels and smuggling, which had declined after tariff reductions in 2024.

 

Market participants also do not expect any major hit to demand for wedding-related purchases. "...people who have to buy for wedding will buy for wedding," Sheth of Metals Focus said. The goldsmith federation's Kedia said wedding-related gold purchases have already fallen to around 25 grams on average from 80-100 grams a year ago. "I think that is already on its lowest level, so hardly one or two gram impact may be there," he said.

 

As an immediate reaction to the announcement of the import duty increase, prices of gold in the domestic market surged. Gold futures on the Multi Commodity Exchange of India rose around INR 11,000 per 10 grams during the day to a two-month high of INR 164,497 per 10 grams. Spot gold prices opened at INR 160,411 per 10 grams Wednesday, significantly higher than Tuesday's closing of INR 151,632 per 10 grams.

 

"What we are seeing in domestic prices today is a mechanical re-pricing to a new import parity, not a fundamental rally," Anindya Banerjee, head of commodity and currency research at Kotak Securities, said. "The duty is now a fixed cost embedded in the price. From here, gold and silver in India will continue to be driven by what they have always been driven by--the international LBMA spot price, the USD/INR exchange rate, and the domestic premium or discount over import parity. The duty has done its job and become a sunk cost."

 

Could the higher import duty adversely affect inflation? According to a note from Barclays, "In the new CPI (2024=100), the combined weight of gold, silver, platinum jewellery, and jewels and semiprecious stones is 1.13% (unlike in the previous CPI series, where data collection took place at the bullion level, in the current series, that has been refined to use jewellery as an input). The increase in the duty to 15% will, ceteris paribus, push May CPI inflation up by 6bp (basis points) and as full impact is reflected in June, it could increase inflation by 10bp."

 

Meanwhile, the rupee has depreciated over 4% against the dollar since the US and Israel attacked Iran on Feb. 28. It hit a record low of 95.80 against the dollar Wednesday. This is one of the major challenges that the authorities are struggling with, and a fall in gold imports could help.

 

Some market participants have proposed a revamp of the Gold Monetisation Scheme under which people could convert their household gold into cash. The scheme did not meet with much success and needs redesign, they said. The government is working on it, said Sheth. It will have to increase the incentive value significantly for consumers to participate, he added.

 

India, along with China, being the world's largest consumers of gold, and the largest importers, a fall in demand for the yellow metal here can be expected to put pressure on global prices. However, not everyone agrees with this equation. "...global demand is driven by a lot of other factors, not just Indian imports," Sheth said. According to Manav Modi, bullion analyst at Motilal Oswal Financial Services Ltd., demand from China too is a big factor. And then there is the demand from central banks. Gold prices will follow interest rates and not demand, he said.  End

 

US$1 = INR 95.70

 

Edited by Rajeev Pai

 

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