Why gold, silver duty hike to 15% is unlikely to hit demand for precious metals – explained – The Times of India

The transfer to up the gold import duty comes days after PM Narendra Modi appeals to residents to keep away from pointless gold purchases for a yr. (AI picture)

In a bid to preserve international change reserves buffer intact, the federal government has raised the import duty on gold and silver to 15% from 6%. India is the world’s second-largest client of gold and the most recent transfer is half of efforts to scale back inbound shipments and relieve strain on international change reserves amid the financial pressure brought on by the US-Iran battle.India depends closely on abroad purchases to meet home gold demand and has periodically taken steps to discourage extreme consumption. In India, gold stays intently linked to weddings, festivals and lengthy-standing cultural practices, which makes shopping for the precious steel extra of a necessity for many households moderately than a discretionary expense.The transfer to up the gold import duty comes days after PM Narendra Modi appeals to residents to keep away from pointless gold purchases for a yr. However is a hike in duties an efficient means to curb consumption? We have a look:

Why are gold and silver imports in focus?

The authorities considers precious steel imports as a serious contributor to strain on the present account deficit, particularly as a result of such imports are seen as non-important in contrast to essential commodities.Though import volumes of gold and silver have remained comparatively secure, the sharp rise in international costs has considerably inflated the import invoice, elevated outflows of international change and added strain on the rupee. India’s expenditure on gold and silver imports climbed to a document $84 billion within the fiscal yr ended March, in contrast with $35.5 billion a decade in the past.India is additionally the world’s largest client of silver, which is extensively used not solely in jewelry, bars and cash but additionally throughout industries reminiscent of solar energy and electronics.Over the previous yr, demand for silver has more and more been pushed by funding curiosity moderately than conventional consumption of jewelry and silverware, with inflows into silver change-traded funds reaching an all-time excessive.

However, does a better duty curb demand?

The numbers reveal a telling image: although home gold costs have surged by 443% over the previous decade, the annual consumption has largely remained secure within the vary of 666 to 803 metric tonnes.Gold demand had additionally stayed resilient throughout the 2012-2013 interval when India elevated import duties from 2% to 10%. After already absorbing a 76.5% soar in gold costs in 2025, customers will not be anticipated to considerably reduce purchases solely as a result of of an extra 9% rise in tariffs, in accordance to a Reuters evaluation.The basic level to perceive is that for many Indian households, gold is seen as a protracted-time period retailer of worth and safety in opposition to inflation and foreign money depreciation. In rural areas, farmers typically rely on gold as a monetary security web throughout emergencies.Loans backed by gold are additionally among the many quickest methods for hundreds of thousands of Indians to get hold of funds, with banks and finance corporations often disbursing credit score inside minutes.

Which part will take a hit?

Historically, jewelry accounts for almost three-fourths of India’s whole gold consumption, whereas the remaining demand comes from investments reminiscent of cash, bars and gold change-traded funds (ETFs).Jewelry purchases had already begun slowing as a result of of elevated costs, and any additional improve is seemingly to weaken quick-time period shopping for whereas encouraging customers to shift towards decrease-carat merchandise.Funding-pushed demand behaves otherwise. Buyers usually buy gold anticipating costs to rise additional, whereas Indian patrons have traditionally handled the steel as a protected-haven asset and a defend in opposition to inflation.Increased import duties improve home costs, which can additional strengthen gold’s picture as an appreciating asset. Rising costs may also appeal to extra buyers who concern lacking out on future positive factors, says the Reuters report.Within the March quarter, funding demand for gold exceeded jewelry consumption for the primary time as buyers turned to the steel amid weak returns from equities. Inflows into home gold ETFs have continued to rise and are anticipated to stay strong.

What about smuggling?

The rally in gold costs had already improved revenue margins for gray market operators, and the most recent improve in import duties has widened these margins to almost 18%, in contrast with round 9% earlier.Unofficial gold imports had remained above 100 tonnes till 2023 however dropped sharply after India decreased tariffs in 2024. Such imports declined to 69.2 tonnes in 2024 from 156.1 tonnes in 2023, and fell additional to 20.4 tonnes in 2025.The revenue margin from smuggling one kilogram of gold has now climbed to a document Rs 30 lakh, rising incentives for unlawful operators within the gray market.