Govt hikes import duty on gold, silver to 15 pc to curb non-essential imports, save forex reserves

The Finance Ministry raised the Basic Customs Duty (BCD) on gold and silver from 5% to 10%, effective May 13, 2026, with the Agriculture Infrastructure and D...

What Happened

The Finance Ministry raised the Basic Customs Duty (BCD) on gold and silver from 5% to 10%, effective May 13, 2026, with the Agriculture Infrastructure and Development Cess (AIDC) simultaneously raised from 1% to 5%, bringing the combined import duty to 15% (from 6% previously).
Platinum import duty was raised to 15.4% from 6.4%, with consequential adjustments applied to related items including dore, coins, and jewellery findings.
Government sources cited "extraordinary external conditions" — chiefly the West Asia crisis — as the trigger, framing the measure as "preventive" to moderate avoidable import demand and ease pressure on India's external account.
India's gold imports surged over 24% to a record USD 71.98 billion in FY 2025-26, even as import volumes declined 4.76% to 721 tonnes — reflecting a sharp rise in international gold prices (from USD 76,617/kg in FY25 to USD 99,825/kg in FY26).
The All India Gems and Jewellery Council estimated the duty hike will add approximately Rs 27,000 per 10 grams to gold costs, and warned that the Rs 5-lakh-crore domestic jewellery industry could see 10–15% volume reduction in retail demand.
Industry bodies cautioned that the duty differential creates strong incentives for smuggling and grey market activity at current elevated gold prices.

Static Topic Bridges

Customs Duty Structure: BCD, AIDC, and IGST

India's import duty on gold is composed of three layers. The Basic Customs Duty (BCD) is the primary tariff levied under the Customs Act, 1962. The Agriculture Infrastructure and Development Cess (AIDC) was introduced in the Union Budget 2021-22 to fund agriculture infrastructure; it is applied on select imports including bullion. The Integrated Goods and Services Tax (IGST), levied at 3% on gold, applies at the point of import and mirrors the domestic GST rate. The total cost of importing gold now includes 10% BCD + 5% AIDC + 3% IGST, resulting in an effective landed cost significantly above the nominal 15% duty headline.

BCD is credited to the Consolidated Fund of India; AIDC receipts are earmarked for agriculture and allied sectors.
IGST on imports is collected by the Centre and then apportioned to states based on the destination principle.
Prior to this hike, the duty structure was 5% BCD + 1% AIDC + 3% IGST = ~9% total.
In 2024, the duty was reduced from 15% to 6% to curb smuggling and support the jewellery export sector.

Connection to this news: The May 2026 hike reverses the 2024 liberalisation, re-imposing high duties under balance-of-payments pressure — the same rationale used in 2013 when duties were raised thrice in a single year as the CAD hit 4.8% of GDP.

Current Account Deficit (CAD) and Gold's Role

The Current Account Deficit (CAD) measures the shortfall between a country's earnings from abroad (exports, remittances, services income) and its payments (imports, repatriated profits). Gold is India's second-largest import commodity after crude oil. Elevated gold imports directly widen the trade deficit, which feeds into CAD, and simultaneously exert downward pressure on the rupee by increasing demand for foreign exchange.

India's gold import bill of USD 71.98 billion in FY26 was a record high, contributing significantly to the merchandise trade deficit.
The rupee reached a record low of 95.63 against the USD on the day of the duty announcement — illustrating the link between import demand and currency pressure.
A 1-percentage-point rise in the CAD-to-GDP ratio is associated with proportionate depreciation pressures under floating exchange rate regimes.

Connection to this news: The duty hike is explicitly aimed at reducing forex outflows for "non-essential imports" — a textbook demand-management tool when the external account is under stress, particularly when combined with West Asia-driven energy import pressures.

Gold Monetisation Scheme (GMS) and Sovereign Gold Bonds (SGB)

The government has historically promoted alternatives to physical gold imports through financial instruments. The Gold Monetisation Scheme (GMS), launched in November 2015, allows households and institutions to deposit idle gold with banks for a fixed period to earn interest, mobilising dormant gold for productive use. Sovereign Gold Bonds (SGBs), also launched in 2015 and issued by the RBI on behalf of the Government, are securities denominated in grams of gold, carrying 2.5% annual interest with an 8-year tenure. SGBs reduce physical gold demand by providing gold-linked returns without requiring import of the metal.

As of late 2024, approximately 31,164 kg of gold had been mobilised under GMS.
The SGB scheme was discontinued in 2024, as it proved to be a high-cost borrowing instrument for the government and did not achieve the desired reduction in physical gold imports.
SEBI regulates Gold ETFs as another instrument channeling investment demand into paper-gold rather than imported bullion.

Connection to this news: The reintroduction of high import duties reflects the limits of the GMS and SGB policy approach. With SGBs discontinued, the government has reverted to the more blunt instrument of tariff-based demand suppression.

Key Facts & Data

Previous duty structure: 5% BCD + 1% AIDC + 3% IGST = ~9% total effective rate
New duty structure: 10% BCD + 5% AIDC + 3% IGST = ~18% total effective rate on landed cost basis
Headline rate change: 6% to 15% (BCD + AIDC combined)
FY26 gold import value: USD 71.98 billion (record high, +24% year-on-year)
FY26 gold import volume: 721.03 tonnes (-4.76% year-on-year, reflecting price rise)
Price trajectory: Gold rose from USD 76,617/kg (FY25 average) to USD 99,825/kg (FY26 average)
Rupee level on announcement day: 95.63 per USD (record low)
Consumer impact: Rs 27,000 per 10 grams additional cost estimated by industry
Jewellery sector size: Rs 5 lakh crore industry; 10–15% volume reduction anticipated
Historical precedent: Duty was last at 15% in 2022; cut to 6% in Union Budget 2024
ISPRL strategic reserves: 5.33 MMT (36.92 million barrels) at Visakhapatnam, Mangaluru, and Padur