New Delhi: In an attempt to mitigate the impact of the West Asia crisis on forex reserves, the Government of India on Wednesday increased import duty on gold
and silver to 15 per cent to curb non-essential imports. The new import came into effect from May 13, i.e Wednesday. The government hiked import duty on gold and silver from 6 per cent to 15 per cent and that on platinum has been raised from 6.4 per cent to 15.4 per cent.
The government hiked the duty on the precious metals days after Prime Minister Narendra Modi appealed to citizens for curbs on gold purchases, minimise the use of fuel-driven vehicles, use metro rail services in cities, carpooling, increased use of electric vehicles, utilising railway services for parcel movement, and working from home to reduce avoidable foreign exchange expenditure. The PM also appealed to citizens to postpone foreign travel for a year.
Shielding India’s Forex reserves
Kedia Advisory spoke exclusively to TV9 Network’s Biplob Ghosal and presented its analysis on government’s decision to hike import duty on gold and silver and PM Modi’s austerity drive appeal.
Commenting on the hiked import duties on gold and silver, the financial advisory group said the move is primarily a defense mechanism for the Rupee and the Current Account Deficit (CAD). With the West Asia crisis driving up crude oil prices, India’s “essential” import bill (energy) has surged. Since gold and silver are considered “non-essential” or “avoidable” imports, the government is trying to reduce the dollar outflow used to purchase these metals, it said.
Kedia Advisory said the move is aimed at targeting the import bill. India is a huge imported of gold. In FY 2025-26, country’s gold imports hit a record high of $71.98 billion. “By making imports more expensive, the government aims to naturally dampen demand and narrow the trade deficit, which reached $333.2 billion last year,” it said.
The financial advisory firm said the gold prices in the domestic market are already high and rates are expected to witness further upward pressure as the landed cost of the metal increases.
Market expects a 10-15% dip in volumes, with consumers likely shifting toward “lightweight” jewellery or recycling old gold rather than buying new bullion. There is a concern that this sharp hike might revive gold smuggling, which had significantly declined when duties were slashed to 6% in the 2024 Budget, it added.
Expressing its views on PM Modi’s austerity call, Kedia Advisory stated that Prime Minister’s appeal to postpone gold purchases and foreign travel is a call for “Economic Patriotism” to shield the nation from global volatility.
PM Modi’s appeal is aimed at reducing Dollar outflow. Explaining the rationale behind the outflow of foreign reserves if people continue to buy gold and go on foreign vacation, the firm said both gold and foreign travel involve heavy spending of foreign currency. By asking citizens to defer these for a year, the goal is to keep more foreign exchange within the country to pay for critical needs like fuel, fertilisers, and defense equipment, it added.
The Rupee has been hit hard against the US Dollar. The high crude oil prices and the strength of the American currency in the overseas market has weighed on investor sentiments.
Stabilising the Rupee
To manage Inflation and the Rupee, PM Modi called for deferring luxury spending as it helps stabilise the Indian currency. “When demand for dollars (to buy gold or travel abroad) exceeds supply, the Rupee weakens. A weaker Rupee makes energy and other imports even more expensive, fueling domestic inflation,” it said.
PM Modi’s appeal was part of a broader “national response” strategy that also encouraged:
• Remote Work: To reduce fuel consumption.
• Support for Local Goods: To reduce dependence on foreign products.
• Judicious Resource Use: Specifically targeting fuel and edible oils to manage the rising import bill.
In essence, the government is treating the current geopolitical climate as an extraordinary situation requiring a “balanced and proportionate” response to maintain long-term economic resilience.
