The government headed by Narendra Modi has raised customs duties on imports of precious metals such as gold and silver from six percent to 15 percent, following the Prime Minister’s recent drive for austerity.
According to a government official, the step is intended to safeguard macroeconomic stability, conserve foreign exchange reserves, and curb non-essential imports amid global uncertainty triggered by the ongoing crisis in West Asia.
The import duty on gold and silver has been increased from 6 per cent to 15 per cent, while the tariff on platinum has risen from 6.4 per cent to 15.4 per cent. He added that corresponding adjustments have been applied to related products, including gold and silver doré, coins, and findings.
India’s move is also intended to protect its currency, the Indian rupee, which has come under severe pressure against the US dollar amid the conflict in West Asia. On Tuesday, the rupee declined by 40 paise, approaching a fresh record low of 95.68 against the US dollar.
The government official stated that the rise in customs duty on precious metals aims to curb non-essential import demand and reduce pressure on the external balance.
'Prudent management of external sector essential'
According to a government official quoted in an earlier HT report, the prevailing geopolitical environment has led to considerable instability in global crude oil markets and international shipping lanes. As a major importer of crude oil, India is exposed to higher energy prices and potential supply disruptions, which can raise the import bill, fuel inflationary pressures, and widen the current account deficit (CAD). Under these conditions, careful and prudent management of the country’s external sector is crucial, the official noted.
The official added that the nation’s foreign exchange reserves should be allocated first to essential imports such as crude oil, fertilizers, industrial raw materials, defense needs, critical technologies, and capital goods. The reason is that these imports play a direct role in sustaining economic activity, ensuring food security, safeguarding national security, and supporting other key priorities.
However, precious metals are driven by both consumption and investment demand, and they entail a substantial outflow of foreign exchange.During times of elevated geopolitical tensions and volatility in commodity markets, policymakers tend to channel external resources toward sectors that offer greater strategic value and stronger economic multiplier effects. Consequently, in such periods of external pressure, carefully calibrated restraint on non-essential imports can play a substantial role in maintaining overall macroeconomic stability and ensuring prudent management of the external sector, he said.
'India proactively responding to external risks'
Measures such as an increase in customs duty convey a clear signal of responsible economic management. They demonstrate that India is actively addressing emerging external risks with timely, calibrated, and focused actions, thereby lowering the likelihood of needing more disruptive corrective steps in the future, the official noted.
Historically, customs duties on precious metals have been adjusted in line with prevailing macroeconomic conditions and external sector developments.The current hike is part of a broader strategy to strengthen India's economic resilience, prioritise essential imports, save foreign exchange and protecting the current account.
Rupee recovers after customs duty hike
The Indian rupee rebounded by 16 paise from its record low to 95.52 against the US dollar in early trade on Wednesday. According to forex traders cited by news agency PTI, market participants anticipate some stability in the dollar-rupee pair as gold importers scale back their demand.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said the measure will "also contribute to reducing the current account deficit and support the rupee to some extent."
Gold, silver prices rally
Gold prices jumped by ₹9,723 to ₹1.63 lakh per 10 grams in futures trading on Wednesday, while silver rose 7 per cent to approach the ₹3 lakh per kilogram level after the government increased import duties on precious metals.On the Multi Commodity Exchange (MCX), gold futures for the June delivery rose by ₹9,723 (6.34 per cent) to ₹1,63,165 per 10 grams.Silver also took a sharp rally, with the most-traded July contract shipping by ₹19,439 (6.97 per cent) to ₹2,98,501 per kilogram on the MCX.
WFH, no gold, no foreign trips: Modi's austerity push
Prime Minister Narendra Modi has been stressing the need for austerity measures amid global economic turbulence triggered by the ongoing war in West Asia. Modi urged people to cut down on petrol and diesel consumption, encourage car-pooling, expand work-from-home and virtual meetings, and refrain from non-essential foreign expenditures, including buying gold and traveling overseas.
On the issue of foreign exchange outflow, the Prime Minister also appealed to citizens to refrain from certain expenses. “The country spends a significant amount of foreign currency on gold. I would like to urge all citizens that, until the situation stabilizes, we should avoid purchasing gold,” PM Modi said.He also said that people should avoid foreign trips and destination weddings, as a lot of foreign currency is spent on these. The PM called for strengthening the consumption of domestic goods and also hailed natural farming.