Background and Context
The government has significantly increased the effective import tax on gold and silver from 9.2% to 18.4%. Previously, the basic customs duty was 5% with 1% Agriculture Infrastructure and Development Cess (AIDC) and 3% IGST, totaling 9.2%. The new structure includes 10% basic customs duty and 5% AIDC, bringing the total to 18.4%.
Macroeconomic Rationale
- Current Account Deficit (CAD) Management: The move aims to manage CAD which is under pressure due to rising crude oil prices and supply chain disruptions in the Strait of Hormuz caused by the West Asia crisis.
- Forex Conservation: The government aims to divert forex resources away from "consumption-driven" precious metals toward essential sectors like energy (crude oil), fertilizers, defense, and critical technologies.
- Rupee Stabilization: The policy aims to stabilize the rupee amid global geopolitical volatility.
Current Forex Status
- India's foreign exchange reserves declined by USD 7.7 billion, standing at USD 690 billion for the week ending 1st May 2026.
- Gold reserves fell by USD 5 billion to USD 115 billion.
Import Trends
- In 2025-26, gold imports reached USD 71.9 billion, primarily driven by surging global prices rather than higher import volume.
- Silver imports skyrocketed by 150% to USD 12 billion.
Industry Concerns
- Experts warn that the duty hike may not curb demand due to India's cultural affinity for gold.
- It may instead fuel the grey market and smuggling.
- MSME manufacturers in the jewellery sector may be hurt by the increased costs.
Constitutional/Policy Context
- Foreign Exchange Management Act (FEMA): Governs foreign exchange transactions and reserves management.
- Customs Act, 1962: Provides framework for import duties and customs taxation.
- Current Account Deficit (CAD): Key macroeconomic indicator measuring the difference between imports and exports of goods, services, and transfers.