India, the world's second-largest gold consumer, has increased import duties on gold and silver to 15% from 6%, following Prime Minister Narendra Modi's recent appeal for citizens to curb bullion purchases for a year due to mounting pressure on the rupee [1]. The new duties comprise a 10% basic customs duty and a 5% tax on gold and silver imports, as detailed in government notifications issued on May 13, 2026 [1].
According to a World Gold Council report, India's average monthly gold imports surged to 83 tonnes in the first two months of 2026, compared to 53 tonnes in 2025, driven largely by strong investment demand in January [1]. In value terms, gold demand nearly doubled year-on-year during the first quarter of 2026, reaching a record $25 billion [1]. This heightened demand has significantly inflated India's import bill, which is also being pushed higher by rising global energy prices and disruptions in the Middle East [1].
India's merchandise trade deficit widened to more than $330 billion in the financial year ending March 2026, up from over $280 billion the previous year [1]. Gold and silver accounted for nearly 11% of total imports, while crude and petroleum products made up 22% [1]. Vishrut Rana, Asia-Pacific economist at S&P Global Ratings, noted that lower gold imports could help reduce current account outflows, but emphasized that elevated energy costs remain the primary concern and are expected to keep pressure on the rupee [1].
The rupee has recently hit record lows against the dollar, reflecting these economic pressures [1]. Trinh Nguyen, senior economist at Natixis, commented that India is 'backtracking on liberalization of the market,' which investors favor, by raising import duties instead of increasing fuel prices at the pump—a move that would lead to 'demand destruction' [1]. Prime Minister Modi has also urged citizens to use public transport, work from home, and carpool to conserve fuel, aligning India with other Asian countries encouraging reduced fuel consumption amid rising energy costs and regional tensions [1].
CONCLUSION
India's decision to hike bullion import duties is a direct response to surging gold demand and a weakening rupee, with the government aiming to reduce current account outflows. However, persistent high energy costs and a widening trade deficit suggest continued pressure on the rupee and potential concerns for investors regarding market liberalization. The move is expected to have a significant impact on India's import dynamics and currency stability.