The government has increased customs duties on gold and silver from 6% to 15% to address pressure on India’s foreign exchange reserves and external account due to the West Asia conflict. Additionally, the duty on platinum imports has been raised to 15.4% from 6.4%. The new structure includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC) on gold and silver imports, resulting in an effective import tax of 15%.
The decision aims to curb the elevated import bill of India, with precious metals being a significant contributor to increased foreign exchange outflows. This duty hike is anticipated to discourage inbound shipments and bolster macroeconomic stability. Prime Minister Narendra Modi had earlier urged citizens to refrain from non-essential gold purchases for a year and embrace austerity measures to safeguard foreign exchange reserves amidst global uncertainties linked to the West Asia crisis.
India, a major consumer of gold globally, sees high demand driven by jewelry, investment, and festival-related purchases. Despite the higher import costs, gold exchange-traded funds (ETFs) witnessed a surge in inflows in April, indicating sustained investor interest in the precious metal. Data from the Association of Mutual Funds in India (AMFI) revealed a 34% increase in gold ETF inflows to Rs 3,040 crore in April, up from Rs 2,265 crore in March.
On the other hand, silver ETFs experienced continuous outflows for the third consecutive month. AMFI data showed that silver ETFs witnessed an outflow of Rs 126 crore in April, following previous outflows of Rs 683 crore in March and Rs 826 crore in February.
