Why India hiked import duty on gold, silver amid rupee fall and rising oil prices

Effective 13 May 2026, the government raised the import duty on gold and silver from 6% to 15%, comprising a 10% basic customs duty and a 5% agriculture infr...

What Happened

Effective 13 May 2026, the government raised the import duty on gold and silver from 6% to 15%, comprising a 10% basic customs duty and a 5% agriculture infrastructure and development cess (AIDC).
The move reversed the Union Budget 2024 decision that had sharply cut gold import duty from 15% to 6% to curb smuggling and stimulate domestic demand.
Gold and silver collectively represent approximately 11% of India's total imports; the duty hike aims to reduce import volumes and ease pressure on both the trade deficit and the depreciating rupee.
India's merchandise trade deficit exceeded $330 billion in FY26, and the rupee has been described as one of Asia's worst-performing currencies, hovering near record lows against the US dollar.
The government also publicly urged a voluntary pause in gold purchases, citing the macroeconomic pressure that import outflows create on external balances.

Static Topic Bridges

Import Duty on Gold — Historical Changes and Policy Rationale

India imposes a basic customs duty (BCD) on gold imports as both a revenue measure and a tool to manage the current account. Gold is the second-largest import category by value after crude oil, making import duty one of the most direct levers available to contain the trade deficit. However, excessively high duties incentivise smuggling, creating a policy tension between fiscal and macroeconomic goals.

Pre-2012 import duty on gold: 2%, raised progressively to 10% by 2013 during the CAD crisis.
2013 crisis measures: Import duty raised to 10%; 80:20 rule introduced (requiring exporters to re-export 20% of imported gold); quantitative restrictions imposed.
2016–2023: Import duty remained at 10–12.5%.
Union Budget 2024 (July 2024): Duty slashed from 15% to 6% (BCD 5% + AIDC 1%) to curb smuggling and reduce the grey market. Overall effective tax including GST fell from ~18.5% to ~9%.
May 2026: Duty restored to 15% (BCD 10% + AIDC 5%) to address rupee depreciation and CAD widening.

Connection to this news: The 2024 cut was reversed within less than two years, demonstrating the recurring tension in India's gold import policy between anti-smuggling goals and macroeconomic stabilisation.

Gold's Role in India's Current Account Deficit

Gold imports represent a significant structural source of current account pressure for India. Unlike oil (which has a productive use in power generation and transport), gold imports are primarily driven by investment demand and jewellery fabrication, with limited productive impact on GDP. Every billion dollars of gold imports adds directly to the trade deficit with no corresponding export multiplier.

India is the world's second-largest gold consumer (after China) and the largest importer on a per-capita basis.
Gold and silver were approximately 11% of India's total imports in FY26; crude and petroleum products were approximately 22%.
India's gold import bill typically ranges between $35–50 billion per annum; in high-demand years it can approach $60 billion.
Gold demand surges in periods of rupee depreciation and financial uncertainty, as investors shift to the metal as a store of value — creating a self-reinforcing pressure on the currency.
The RBI maintains substantial gold reserves (~800 tonnes as of FY26) as a diversification of its forex reserve portfolio.

Connection to this news: Raising the import duty reduces the volume of formal gold imports at the margin, directly shrinking the trade deficit and relieving pressure on the rupee.

Gold Monetisation Scheme (GMS)

Launched in November 2015, the Gold Monetisation Scheme was designed to mobilise idle household gold (estimated at 25,000+ tonnes held in Indian homes and temples) by offering interest-bearing deposits backed by gold. The scheme allows individuals and institutions to deposit gold with designated banks; the gold is assayed, and depositors earn interest (0.5–2.5% p.a. depending on tenure) while the metal is channelled to jewellers and industrial users, reducing import dependence.

Administered by the Ministry of Finance; RBI issues operational guidelines to scheduled commercial banks.
Three variants: Short-term Bank Deposits (STBD, 1–3 years); Medium-term Government Deposits (MTGD, 5–7 years); Long-term Government Deposits (LTGD, 12–15 years).
Cumulative gold mobilised under GMS through FY26: approximately 30–35 tonnes — a small fraction of the theoretical 25,000-tonne target, highlighting scheme underperformance.
Interest earned on GMS deposits is exempt from capital gains tax, income tax, and wealth tax to incentivise participation.

Connection to this news: If GMS functioned at scale, India could recycle domestic gold stocks to meet fabrication demand without importing, reducing CAD pressure. The low uptake makes import duty the primary instrument of demand management.

Rupee Depreciation and External Vulnerability

The Indian rupee is a managed float — its value is determined primarily by market forces (demand and supply of dollars), with periodic RBI intervention to smooth excessive volatility. A widening CAD increases dollar demand for import payments, exerting downward pressure on the rupee. A depreciating rupee, in turn, raises the domestic currency cost of dollar-denominated imports (particularly oil and gold), further widening the deficit — creating a feedback loop.

India's external sector is managed under the Foreign Exchange Management Act (FEMA), 1999, which defines permissible capital and current account transactions.
RBI uses a combination of dollar sales from reserves, currency swap lines, and NRI deposit incentive schemes to stabilise the rupee during periods of stress.
A 1% rupee depreciation raises India's import bill by approximately $3–4 billion (given the import composition).
The rupee-dollar rate as of May 2026 was near historic lows, amplifying the domestic cost of all commodity imports.

Connection to this news: The gold duty hike is as much a currency stabilisation measure as a fiscal one — by reducing a significant import outflow, it aims to ease structural dollar demand and support the rupee.

Key Facts & Data

Gold import duty (May 2026): 15% (BCD 10% + AIDC 5%); effective 13 May 2026.
Previous rate (since Union Budget 2024): 6% (BCD 5% + AIDC 1%).
Gold and silver share of India's total imports: approximately 11%.
India's annual gold import bill: typically $35–60 billion.
India's merchandise trade deficit FY26: exceeded $330 billion.
Union Budget 2024 rationale for cut: curb smuggling; cut took effective tax from ~18.5% to ~9% (including GST).
Gold Monetisation Scheme launched: November 2015.
Cumulative GMS mobilisation: approximately 30–35 tonnes through FY26.
RBI gold reserves: approximately 800 tonnes (FY26).
India's rank in global gold consumption: 2nd largest (after China).