Import duty on gold, silver more than doubled to curb imports, support rupee

The Union government raised the import duty on gold and silver from 6 percent to 15 percent, effective May 13, 2026. The revised structure comprises a 10 per...

What Happened

The Union government raised the import duty on gold and silver from 6 percent to 15 percent, effective May 13, 2026.
The revised structure comprises a 10 percent Basic Customs Duty (BCD) and a 5 percent Agriculture Infrastructure and Development Cess (AIDC).
Import duty on platinum was raised to 15.4 percent.
The measure is aimed at curbing non-essential imports to conserve foreign exchange reserves, which have come under pressure from elevated oil and fertiliser purchase costs amid the West Asia conflict.
India's average monthly gold import rose to 83 tonnes in the first two months of 2026, up sharply from an average of 53 tonnes per month in 2025.

Static Topic Bridges

Basic Customs Duty (BCD) and Import Levies

Basic Customs Duty is the principal tariff levied on imported goods under the Customs Act, 1962. India's tariff structure on gold consists of two components: BCD, which forms the primary protective layer, and various cesses such as the Agriculture Infrastructure and Development Cess (AIDC), which was introduced in the Union Budget 2021-22. The combined effective rate is what determines the landed cost of the imported commodity.

BCD on gold: raised from an earlier level to 10 percent
AIDC on gold: 5 percent (introduced Budget 2021-22)
Total effective import duty: 15 percent (gold and silver), 15.4 percent (platinum)
The Customs Act, 1962 is the governing statute for import tariffs in India
WTO bound tariff rates set an upper ceiling; India's bound rate on gold is considerably higher than the applied rate, giving policy flexibility

Connection to this news: The government used the BCD instrument — rather than a quantitative restriction — to suppress gold demand without formally restricting imports, consistent with India's WTO commitments.

Current Account Deficit (CAD) and Gold Imports

The Current Account Deficit measures the net outflow of foreign exchange from a country on account of trade in goods, services, and transfers. Gold is a non-productive import — it does not contribute to manufacturing output or export earnings — and large gold inflows persistently widen India's trade deficit and CAD. India is the world's second-largest gold consumer (after China), making its import volumes globally significant.

India imports nearly all of its gold demand (~800–900 tonnes annually) as domestic production is negligible
A widening CAD depreciates the rupee, raises the cost of oil and other dollar-denominated imports, and can pressure foreign exchange reserves
In 2013, the government raised gold import duty from 2 percent to ~10 percent in successive steps to address a record-high CAD (~4.8 percent of GDP in FY2013)
The 2026 hike echoes the 2013 episode — both triggered by a combination of elevated gold demand and macroeconomic stress

Connection to this news: With forex reserves under pressure from costlier oil and fertiliser imports due to the West Asia conflict, the duty hike targets gold — the single largest non-oil import line — to ease CAD stress and support the rupee.

Foreign Exchange Reserves and the Rupee

Foreign exchange (forex) reserves are assets held by the RBI in foreign currencies, gold, Special Drawing Rights (SDRs), and IMF reserve tranche positions. The RBI uses forex reserves to intervene in currency markets to stabilize the rupee. When import bills rise — especially for oil and gold — forex reserves deplete, which can exacerbate the rupee's depreciation.

India's forex reserves are managed by the RBI under FEMA, 1999
The RBI's foreign exchange intervention authority is derived from Section 40 of the RBI Act, 1934
A falling rupee is self-reinforcing: it raises the rupee-cost of oil imports, further widening the trade deficit
Duty hikes on gold reduce the volume of gold imports, thereby reducing the forex outflow on that account

Connection to this news: The stated objective of the duty hike is to "conserve foreign exchange reserves" and "support the rupee" — textbook application of tariff policy for macroeconomic stabilization.

Unintended Consequence: Gold Smuggling

A known side-effect of sharp duty hikes on gold is the revival of informal (smuggled) gold trade. When the official landed cost rises significantly above the grey-market equivalent, price arbitrage incentivizes smuggling. This was documented during the 2013 hike, when smuggling volumes spiked before duties were partially rolled back.

Smuggled gold avoids BCD, AIDC, and GST (3 percent on gold), making price arbitrage attractive at high duty levels
The Directorate of Revenue Intelligence (DRI) and Customs are the enforcement agencies
Industry bodies have flagged the same risk for the 2026 hike

Connection to this news: The effectiveness of the duty hike in reducing official gold imports may be partially offset by an increase in smuggled gold — a recurring policy dilemma.

Key Facts & Data

New effective import duty on gold and silver: 15 percent (10% BCD + 5% AIDC)
New effective import duty on platinum: 15.4 percent
Previous import duty: 6 percent
India's average monthly gold import in Jan–Feb 2026: 83 tonnes (vs. 53 tonnes/month average in 2025)
India is the world's second-largest gold consumer (after China)
Governing statute for import tariffs: Customs Act, 1962
Agriculture Infrastructure and Development Cess introduced in: Union Budget 2021-22
Precedent: 2013 duty hike took gold BCD from 2% to ~10% to address CAD at ~4.8% of GDP