Winning Bizness Desk
Mumbai.The Centre’s decision to raise import duty on gold and silver from 6% to 15% has triggered a massive spike in bullion prices across the country. On Tuesday, gold prices surged by nearly ₹9,000 per 10 grams, while silver became costlier by around ₹18,000 to ₹22,000 per kilogram in major bullion markets. The sudden increase came just three days after Prime Minister Narendra Modi urged citizens not to buy gold for one year in the national interest to help save foreign exchange reserves.
As per the latest market rates, 10 grams of gold touched around ₹1.60 lakh, while silver climbed close to ₹2.87 lakh per kilogram. The government has imposed a 10% Basic Customs Duty and a 5% Agriculture Infrastructure and Development Cess (AIDC), taking the total effective tax on imports to 15%. The move comes amid global uncertainty caused by the ongoing tensions between the US and Iran and growing pressure on India’s foreign exchange reserves.
Why government tightened import duty rules
The government believes the step will reduce excessive gold imports and help control the country’s rising current account deficit. India is the world’s second-largest consumer of gold and depends heavily on imports to meet domestic demand. Large-scale imports require heavy dollar payments, putting pressure on the rupee and foreign exchange reserves.
Industry experts say the move is aimed at reducing unnecessary overseas spending. However, traders fear that higher taxes may revive gold smuggling, which had declined after import duty was reduced from 15% to 6% in the 2024 Union Budget.
India Bullion and Jewellers Association National Secretary Surendra Mehta said the decision may weaken consumer demand at a time when prices are already at record highs.
Key points behind latest bullion shock
The recent policy changes have created confusion in the banking and bullion sectors. Banks are now required to pay 3% IGST immediately after importing gold, leading to huge funds getting blocked as advance tax payments.
Important developments linked to the decision:
- Gold and silver import duty increased from 6% to 15%
- Immediate 3% IGST payment rule increased pressure on banks
- Many banks reportedly paused gold imports for nearly one month
- April gold imports estimated at just 15 tonnes
- This could become the lowest monthly import level in nearly 30 years, excluding the Covid period
Earlier, banks used bonded warehouses and paid taxes only after selling imported gold. The new rules have disrupted cash flow and working capital management.
Impact likely on common buyers and markets
Jewellers and wholesale traders expect prices to remain volatile in the coming weeks. Higher import costs directly increase the landing price of gold and silver in India, making jewellery purchases more expensive for ordinary families, especially during weddings and festive seasons.
Experts believe reduced imports may also create supply shortages in local markets. If availability falls further, prices could rise even more despite weak demand.
Market observers also warn that:
- High taxes may encourage illegal smuggling networks
- Smaller jewellers could face supply difficulties
- Wedding-related purchases may decline sharply
- Rural demand may weaken because of soaring prices
The bullion industry has sought clarity from the government on taxation and import procedures to avoid further disruption.
PM repeats appeal to avoid gold purchases
Prime Minister Narendra Modi had appealed twice on May 10 and 11 for citizens to avoid buying gold for one year. Referring to past national crises, he said Indians once donated gold for the country and now should show similar responsibility by reducing purchases to save foreign exchange.
The appeal came at a time when the Indian rupee had slipped to an all-time low of 95.50 against the US dollar on May 12. Economists say lowering gold imports could help stabilise the rupee and reduce the trade deficit in the long run.
Even though the government’s move may strengthen macroeconomic stability over time, the immediate impact is clearly visible in the bullion market, where both buyers and traders are now facing record-high prices and uncertainty over future demand.
