Govt hikes import duty on gold, silver to 15% amid forex concerns

The government raised the import duty on gold and silver to 15% from the earlier 6%, effective May 13, 2026 — a hike of 9 percentage points, more than doubli...

What Happened

The government raised the import duty on gold and silver to 15% from the earlier 6%, effective May 13, 2026 — a hike of 9 percentage points, more than doubling the previous rate.
The new duty structure combines a Basic Customs Duty (BCD) of 10% and an Agriculture Infrastructure and Development Cess (AIDC) of 5%, bringing the total customs levy to 15%.
With a 3% Integrated GST (IGST) added on top, the total effective levy on gold and silver imports rises to approximately 18.45%, from approximately 9.18% earlier.
The stated rationale is to curb non-essential imports, conserve India's foreign exchange reserves, and reduce pressure on the rupee amid global geopolitical uncertainty.
Imports of gold and silver rose 26.7% year-on-year to USD 102.5 billion in FY2025–26, with their share of India's total imports rising from 11.8% to 14%.
Duty-free import entitlements for returning passengers were also capped at 100 kg per airline, following the duty hike.

Static Topic Bridges

India's Customs Duty Architecture

India's import duty system is layered, with each component serving a distinct fiscal or policy purpose. Understanding this structure is essential for Prelims MCQs and Mains policy analysis questions.

Basic Customs Duty (BCD): The primary tariff on imported goods, levied as a percentage of the CIF (Cost, Insurance, Freight) value. Standard slabs are 5%, 10%, 15%, and 18%. BCD revenue goes to the Consolidated Fund of India.
Agriculture Infrastructure and Development Cess (AIDC): Introduced in Union Budget 2021–22, levied on select imports including gold, silver, crude oils, alcoholic beverages, coal, fertilisers, and pulses. Revenue is earmarked for agricultural infrastructure development. For gold/silver, AIDC was set at 5% in 2026.
Social Welfare Surcharge (SWS): A 10% surcharge on the aggregate of BCD and other customs duties (excluding IGST). It funds social sector schemes.
Integrated GST (IGST): Computed on the base of assessable value + BCD + SWS + AIDC. Standard rate for gold is 3%. IGST collections are shared between Centre and States.
For gold post-May 13, 2026: BCD (10%) + AIDC (5%) + SWS (10% of BCD = 1%) + IGST (3% on gross) = approximately 18.45% total.

Connection to this news: The duty hike used both the BCD lever (raised to 10%) and the AIDC lever (5%) — a combination that maximises customs revenue while directing part of it toward agricultural infrastructure, blending fiscal consolidation with structural spending.

Gold Imports and India's Current Account Deficit

India is the world's second-largest consumer of gold (after China) and meets nearly all of its demand through imports, as domestic gold mining is negligible. Gold imports are dollar-denominated, directly widening the trade deficit and, consequently, the current account deficit (CAD). A rising CAD puts downward pressure on the rupee.

India's gold imports in FY2025–26: USD 102.5 billion (gold + silver combined), up 26.7% year-on-year.
Gold's share of India's total merchandise imports rose from 11.8% (FY25) to 14% (FY26).
India's current account deficit is expected to widen to 1.7–2.0% of GDP in FY26.
India's forex reserves fell from a peak of USD 728.49 billion (February 2026) to approximately USD 690.69 billion (May 1, 2026) — a decline of ~USD 38 billion, partly driven by RBI's rupee defence operations.
The RBI sold over USD 100 billion in spot and forward markets during 2025–26 to manage rupee depreciation.
India's forex reserves as of March 2026 covered over 12 months of imports (USD 709.75 billion).

Connection to this news: The duty hike is a direct response to gold imports being a primary driver of the trade deficit and forex outflow. Jewellery sector analysts project a 10–15% reduction in gold imports following the hike.

History of Gold Import Duty Policy in India

India's gold import duty has been a cyclical policy tool — raised to curb imports during CAD stress, lowered to combat smuggling when high duties make illicit imports profitable.

2013: Duty raised in three steps from 4% to 10% within eight months, in response to a record CAD; the 80:20 scheme (importers must re-export 20% of each shipment) introduced simultaneously.
2014: 80:20 scheme scrapped after it was found to have fuelled distortions and parallel illegal markets.
2019: Duty raised from 10% to 12.5% to boost customs revenue.
2021: Duty cut from 12.5% to 10.75% to fight surging smuggling (gold smuggling rose sharply when duty was at 12.5%).
2022: Duty raised to 15% to check the CAD and gold import surge post-COVID.
2024: Duty sharply cut to 6% — the lowest since June 2013 — to support gems and jewellery exports and curb smuggling, on the recommendation of industry bodies.
May 2026: Duty raised back to 15% — reversing the 2024 cut — due to renewed forex pressure and a 26.7% surge in gold imports.

Connection to this news: The May 2026 hike completes a full cycle: cut in 2024 to fight smuggling, imports surged anyway, hike restored in 2026 to fight forex pressure — illustrating the classic policy dilemma between duty-induced price signals and grey market incentives.

Foreign Exchange Reserves: Management and Policy Tools

India's foreign exchange reserves are managed by the Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The RBI uses reserves to intervene in the forex market, pay for imports, and service sovereign debt.

India's forex reserves comprise: Foreign Currency Assets (FCA), Gold reserves held by RBI, Special Drawing Rights (SDRs) from IMF, and Reserve Tranche Position at IMF.
As of September 2024, the RBI held 854.73 metric tonnes of gold — approximately 9.32% of total reserves.
FEMA, 1999 (replaced FERA, 1973) governs current account transactions (liberal) and capital account transactions (more regulated). Gold imports are a current account transaction.
The RBI intervenes in the forex market (buying/selling dollars) to manage excessive rupee volatility — not to target a specific exchange rate (per the managed float system India follows).
Gold import duty is a fiscal tool (under Customs Act, 1962) used to manage the trade balance, whereas RBI's forex market intervention is a monetary/external tool.

Connection to this news: The import duty hike is a fiscal complement to the RBI's market interventions — both are aimed at reducing pressure on India's forex reserves, but operate through different mechanisms (trade flow reduction vs. direct market operations).

Gold Smuggling: The Elasticity of Illicit Trade

A high import duty creates a price differential between official import prices and grey-market prices that, above a threshold, makes smuggling economically rational. India has experienced two major smuggling surges linked directly to high duty regimes (post-2013 and post-2022).

India's Customs (Smuggling) data showed a significant decline in gold seizures after the 2024 duty cut to 6% — confirming that lower duties reduced the smuggling premium.
The Directorate of Revenue Intelligence (DRI) under the Finance Ministry is the primary agency tracking gold smuggling routes.
Gold is classified as a "controlled import" under the Foreign Trade Policy — only canalised agencies (primarily banks and MMTC) and Star Trading Houses are permitted to import gold directly.
Industry bodies (GJEPC — Gems and Jewellery Export Promotion Council) have warned that the May 2026 hike may reverse the smuggling decline achieved after 2024.

Connection to this news: Analysts and industry executives have flagged that the 15% duty risks reigniting smuggling networks that had gone dormant after 2024, making this a key policy trade-off between forex conservation and anti-smuggling objectives.

Key Facts & Data

Previous gold/silver import duty: 6% (from July 2024)
New duty (May 13, 2026): 15% (BCD 10% + AIDC 5%)
Total effective levy including IGST: ~18.45% (vs ~9.18% earlier)
Gold/silver imports FY2025–26: USD 102.5 billion (+26.7% YoY)
Gold/silver share of total imports: 14% (FY26) vs 11.8% (FY25)
India's forex reserves peak: USD 728.49 billion (February 2026)
Forex reserves May 2026: ~USD 690.69 billion
RBI forex market sales FY26: over USD 100 billion
CAD projection FY26: 1.7–2.0% of GDP
AIDC introduced: Union Budget 2021–22
FEMA enacted: 1999 (replaced FERA 1973)
Customs Act: 1962
Duty-free import cap post-hike: 100 kg per airline passenger entitlement
India's gold import volume FY26: 721.03 tonnes (down 4.76% from 757.09 tonnes in FY25)
RBI gold holdings (Sept 2024): 854.73 metric tonnes