The government increased import duties on gold and silver from 6 per cent to 15 per cent in an attempt to reduce foreign purchases of the metals and ease the pressure on the country’s foreign exchange reserves.
Here is what industry analysts say about this move:
Manav Modi Commodities Analyst, Motilal Oswal Financial Services Ltd
The move is aimed at curbing overseas purchases of precious metals and reducing pressure on the country’s foreign exchange reserves. Revised structure includes a 10 per cent basic customs duty along with a 5 per cent Agriculture Infrastructure and Development Cess (AIDC), lifting the effective import tax to 15 per cent.
PM Narendra Modi had urged citizens to avoid/limit buying gold for a year to help conserve foreign exchange reserves.
Since India relies heavily on imports to meet domestic gold demand, higher duties are expected to help narrow the trade deficit and provide support to the rupee which was trading at an all-time high level.
As duty takes effect, physical premiums might be elevated, increasing disparity between spot an MCX.
Earlier, COMEX gold prices had come under pressure after US consumer inflation accelerated to 3.8 per cent in April, above expectations of 3.7 per cent and the highest level since May 2023, driven largely by rising energy costs linked to the Middle East conflict.
Geopolitical tensions also remained elevated after President Trump said the US-Iran ceasefire was on “massive life support” following his rejection of Tehran’s latest peace proposal, increasing fears that key shipping routes could remain disrupted for an extended period.
Sumit Singhania, Research Head, Bajaj Broking
The measure is aimed at curbing precious metal imports and reducing pressure on the country’s foreign exchange reserves. India continues to remain the world’s second-largest consumer of gold after China, with demand primarily driven by jewellery industry.
The move follows PM Modi’s appeal to citizens to avoid gold purchases amid rising economic stress linked to the ongoing Middle East conflict. Higher duties are expected to reduce precious metal imports, support the rupee, and help narrow the trade deficit.
Negative Impact: Jewellery companies such as Titan Company, Kalyan Jewellers and Sky Gold & Diamonds may face pressure as higher tariffs increase domestic gold prices and could weaken consumer demand, particularly for discretionary purchases like coins, medallions, jewellery, etc.
Positive Impact: Gold financing firms including Muthoot Finance and Manappuram Finance are likely to benefit from higher collateral values of gold loans. Meanwhile, precious metal futures on the Multi Commodity Exchange of India surged around 6 per cent following the announcement.”
