The government’s decision to raise customs duty on gold and other precious metals is neither prohibitory nor anti-consumer. The tariffs are aimed at curbing non-essential imports as the West Asia conflicts aggravates external-sector risk, sources said on May 13.
A day earlier, the government raised customs duty on imports of precious metals including gold, silver, and platinum amid heightened uncertainty arising from the Iran war.
Import duty on gold and silver has been raised from 6 percent to 15 percent. Duty on platinum has been increased from 6.4 percent to 15.4 percent. Changes have also been made on products such as gold and silver dore and coins.
“It is a carefully calibrated and proportionate intervention designed to encourage moderation in non-essential imports at a time when external vulnerabilities remain elevated,” sources said.
The increase came two days after the Prime Minister Narendra Modi urged austerity. He listed a string of suggestions, including putting off gold purchases and non-essential foreign travel by a year, to conserve energy as well as forex.
Current Account Deficit concerns
“As a large importer of crude oil, India remains vulnerable to elevated energy prices and supply-side disruptions, which can increase the import bill, exert pressure on inflation, and the Current Account Deficit (CAD). In such circumstances, prudent management of the country’s external sector becomes essential,” one of the sources said.
The government was prioritising foreign exchange use towards essential imports such as crude, fertilisers, industrial raw materials, defence requirements, critical technologies and capital goods, sources said.
Customs duty adjustments have historically been used as a policy instrument to support macroeconomic stability and manage CAD-related pressures during periods of global volatility, they added.
Non-essential imports
Sources said precious metal imports, while culturally and financially significant, are largely consumption and investment-driven and involve substantial outflow of foreign exchange.
“Further, precious metals occupy a unique position in the import basket because they involve significant foreign exchange outflows while being relatively less linked to productive industrial activity compared to sectors such as energy, manufacturing inputs, infrastructure, or technology,” sources said.
During periods of heightened geopolitical and commodity-market volatility, policymakers often seek to prioritise external resources towards areas with higher strategic and economic multiplier effects, sources added.
“The measure represents a balanced, proportionate, and nationally responsible response to extraordinary external conditions while maintaining due regard for macroeconomic stability and long-term economic resilience,” sources said.
Reversal from Budget 2024-25
The move marks a reversal from the customs duty cuts announced in Union Budget 2024-25, which reduced duties on gold and silver from 15 percent to 6 percent, and platinum to 6.4 percent from 15.4 percent amid a relatively comfortable macroeconomic environment.
