Government Raises Gold-Silver Import Duty

Government Raises Gold-Silver Import Duty

Why in News?

Recently, the Indian government raised gold and silver import duty from 6% to 15% to reduce soaring imports and control widening trade deficit pressures amid global economic uncertainty.

• The revised rate includes 10% Basic Customs Duty (BCD) and 5% Agriculture Infrastructure and Development Cess (AIDC).
• The move reversed the 2024 Union Budget decision that had reduced customs duty to 6% to support the jewellery sector and reduce smuggling.

Import Duty & Its Regulation in India 

• Import duty is a tax imposed by the Government of India on goods entering the country. 
  • It regulates foreign trade, protects domestic industries, generates revenue, and controls excessive imports. 
  • It is governed mainly under the Customs Act, 1962 and the Customs Tariff Act, 1975. 
• The Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance administers customs duties. 
  • It supervises valuation, assessment, collection, anti-smuggling operations, and trade facilitation through digital platforms like ICEGATE. 
• BCD is the primary import tax levied on the Assessable Value (CIF value) of imported goods. Rates vary from 0% to over 100% depending on product category and national trade priorities.
• India levies IGST on imports to maintain tax parity between domestic and imported products. 
  • IGST rates generally range from 5% to 28% and are charged on value including customs duties.
• The government imposes 10% Social Welfare Surcharge on customs duties to fund welfare programmes related to health, education, and social security. 
  • It was introduced through the Finance Act, 2018. 
• India uses anti-dumping duty, safeguard duty, and countervailing duty to protect domestic industries from unfair foreign competition and subsidized imports.
• Imported goods are classified using the 8-digit ITC-HS Code system. Duty rates, exemptions, and restrictions depend upon correct classification of products.
• India provides concessional or zero-duty imports under FTAs with nations like the ASEAN, United Arab Emirates, and Australia to enhance trade competitiveness.

Reasons Behind Increase in Gold-Silver Import Duty

• Foreign Exchange Reserves: India increased gold and silver import duty from 6% to 15% mainly to protect its foreign exchange reserves. 
  • Precious metals are largely imported using US dollars, causing heavy forex outflow during global economic instability and rising oil prices. 
• Rising Current Account Deficit: The government aimed to reduce the widening Current Account Deficit caused by expensive imports. 
  • Gold alone contributes nearly 9–10% of India’s total import bill, increasing pressure on the balance of payments.
• Weakening Indian Rupee: The Indian rupee recently touched around ₹95.63 per US dollar, becoming one of Asia’s weakest-performing currencies. 
  • Higher import duty is intended to reduce dollar demand and stabilize the rupee. 
• Surge in Gold Import Value: India’s gold imports surged nearly 24% to $71.98 billion in FY 2025-26, despite lower import volume growth. 
  • Rising international bullion prices sharply increased India’s import expenditure. 
  • Gold is categorized as a largely non-essential import. By making bullion costlier, the government seeks to discourage excessive consumption.
• West Asia Geopolitical Crisis: The ongoing West Asia conflict and risks around the Strait of Hormuz increased concerns regarding oil supply disruptions and inflation. 
  • The government therefore prioritized conserving foreign exchange. 
• Protection of Macroeconomic Stability: The duty hike is part of broader efforts to maintain macroeconomic stability, manage inflationary risks, and strengthen India’s external sector resilience amid global uncertainty.
  • India imported nearly $84 billion worth of gold and silver in FY26, heavily impacting external balances. Lower imports may improve macroeconomic stability.
  • The government intends to preserve foreign currency for critical imports such as crude oil, fertilizers, and technology, rather than precious metals, during uncertain global conditions.

Impact of Higher Import Duty

• Inflationary Jewellery Prices: Domestic gold prices may rise sharply because the effective tax burden increased from around 6% to 15%. 
  • Industry estimates suggest imported gold may become costlier by nearly ₹27,000 per 10 grams, directly affecting retail jewellery affordability.
• Pressure on Jewellery Industry: Major jewellery companies may witness declining sales volumes and weaker profitability.
  • Industry bodies project nearly 5–7% business contraction, while some analysts expect physical gold demand to decline by around 10% in the near term.
• Shift in Consumer Behaviour: Consumers may increasingly prefer lightweight, lower-carat jewellery, gold loans, recycled gold, and digital investment options like ETFs. 
  • Organised jewellers with stronger inventories and branding may outperform smaller unorganised retailers during high-price periods.
• Risk of Gold Smuggling: Higher tariffs may widen the price gap between legal and illegal imports, reviving smuggling networks that had declined after the 2024 duty reduction. 
  • This could reduce customs revenue and create enforcement challenges for border agencies.