India has sharply raised import duties on gold and silver to 15% from 6%, a significant policy reversal aimed at curbing runaway demand for bullion and easing intense pressure on the rupee.
This comes just days after Prime Minister Narendra Modi personally appealed to citizens to reduce gold purchases for the next year.
The new structure, announced through government notifications on Wednesday, includes a 10% basic customs duty and an additional 5% tax. The move underscores the government’s growing alarm over the country’s widening trade deficit and the rupee’s slide to record lows against the dollar.
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Surging Gold Demand Adds to Economic Strain
As the world’s second-largest gold consumer, India has seen a dramatic spike in bullion imports. Average monthly gold imports jumped to 83 tons in the first two months of 2026, up from 53 tons in 2025, according to the World Gold Council. In value terms, gold demand in the first quarter of 2026 nearly doubled year-on-year to a record $25 billion, fueled largely by strong investment buying in January.
This surge has compounded India’s already challenging external balances. The country posted a merchandise trade deficit exceeding $330 billion in the financial year ending March 2026, up from more than $280 billion the previous year. Gold and silver now account for nearly 11% of total imports, while crude oil and petroleum products make up 22%.
“Lower gold imports can indeed help lower current account outflows for India, as gold import outlays are substantial,” said Vishrut Rana, Asia-Pacific economist at S&P Global Ratings.
However, he noted that “energy costs are still front and center, and while these are elevated, we expect pressure on the rupee will persist.”
India imports nearly 85% of its fuel needs and was heavily reliant on the Strait of Hormuz for about 50% of its crude oil, 60% of its liquefied natural gas, and nearly all of its LPG supplies before recent Middle East disruptions. Rising global energy prices linked to the Iran conflict have significantly widened both the trade and current account deficits, putting sustained downward pressure on the rupee.
In response, Prime Minister Modi on Monday urged citizens to conserve fuel by using public transport, working from home, and carpooling. India has notably avoided raising pump prices, a move that would trigger “demand destruction”, and has instead turned to import curbs and duty hikes.
Economist Trinh Nguyen of Natixis criticized the approach, telling CNBC: “India is backtracking on liberalization of the market, which investors like about India.”
She added that the government is shifting away from economic liberalization in favor of direct interventions.
Cultural vs. Macroeconomic Trade-off
The policy shift highlights a classic tension in India: gold’s deep cultural and emotional significance. Bullion is central to weddings, festivals, and religious traditions, and serves as a trusted store of value and hedge against inflation for millions of households. Higher duties risk pushing some demand underground into smuggling channels, as seen during previous duty spikes, while hurting the powerful jewelry industry that employs millions.
The timing is particularly sensitive. The government is trying to manage external vulnerabilities without derailing domestic consumption or alienating key voter bases ahead of future political cycles.
India is not acting alone. Several Asian nations are encouraging lower fuel consumption amid elevated energy costs and Middle East tensions. However, India’s dual challenge, curbing both gold and energy imports, is especially acute given its massive population and high dependence on imported commodities.
The duty increase is expected to cool import volumes in the coming months, but analysts expect its success will ultimately depend on global oil prices, domestic economic sentiment, and the effectiveness of Modi’s public appeals for moderation.
While the latest intervention may provide short-term relief to the rupee and current account, analysts warn that sustained stability will require addressing deeper structural issues. They include boosting domestic energy production, improving export competitiveness, and creating alternative financial savings instruments that can compete with gold’s cultural appeal.