The Indian government has significantly increased import duties on Gold and Silver to 15% from the previous 6%, as announced by India’s Department of Revenue under the Customs Act. This move also includes a 5% customs duty on Gold and Silver findings, which are small components used in jewellery manufacturing [1]. The hike in tariffs is aimed at curbing bullion imports to ease pressure on the country’s foreign exchange reserves, a concern highlighted by Prime Minister Narendra Modi, who recently urged citizens to postpone non-essential gold purchases for almost a year and to reduce fuel consumption and avoid foreign travel [1].
Following the announcement, the Indian Rupee (INR) showed mild strength against the US Dollar (USD), with the USD/INR pair trading lower near 95.60 in Wednesday’s opening session [1]. Market participants had anticipated the government’s move, given ongoing worries about forex reserves amid geopolitical tensions [1].
Meanwhile, oil prices remain elevated, with WTI Oil correcting to near $97.20 but still over 6% higher for the week. This is attributed to the unresolved US-Iran negotiations, with US President Donald Trump rejecting Iran’s counterproposal and Iran insisting on reparations, sovereignty over the Strait of Hormuz, and an end to US sanctions [1].
Foreign Institutional Investors (FIIs) continue to sell off their holdings in the Indian stock market, driven by concerns over India Inc.’s earnings projections due to higher energy prices. In May, FIIs have been net sellers in six out of seven trading days, offloading stakes worth Rs. 21,469.30 crore [1]. Despite the Rupee’s initial strength, analysts suggest that the USD/INR pair could resume its upward trend, supported by strong US inflation data for April, with the US Dollar Index (DXY) near its weekly high of 98.46. The US headline CPI grew at an annualized pace of 3.8%, exceeding estimates of 3.7% [1].
CONCLUSION
India’s hike in import duties on Gold and Silver has provided temporary support to the Rupee, but ongoing FII outflows and strong US inflation data may limit further gains. The move reflects government efforts to protect forex reserves amid global uncertainties, while elevated oil prices and persistent foreign investor selling continue to weigh on market sentiment.