Customs Duty Hike on Precious Metals
The Indian government has raised customs duties on gold and silver imports from 5% to 10% and Agriculture Infrastructure and Development Cess (AIDC) from 1% to 5%, resulting in a total effective import duty of 15% as of May 13. The duty on platinum has also increased from 6.4% to 15.4%.
Policy Objectives
- Macroeconomic Stability: The hike aims to stabilize the macroeconomic environment by reducing non-essential imports during global uncertainties, particularly due to the West Asia crisis.
- Foreign Exchange Conservation: The increase is also aimed at conserving foreign exchange resources by moderating avoidable import demand.
Impact on Current Account Deficit (CAD)
- Gold is the second-largest item in India's import bill after crude oil.
- Gold imports rose by 24.1% in FY26 to $71.97 billion, primarily due to rising gold prices, despite a decrease in import volume from 757.09 tonnes to 721.04 tonnes.
- Volatility in global crude oil markets and shipping routes has raised concerns over inflation and CAD pressures.
- Duty adjustments are seen as a tool to manage CAD-related pressures during global volatility.
Foreign Exchange Conservation Strategy
- Rupee Depreciation: The rupee depreciated to an all-time low, impacting the import bill.
- Precious metals, while significant culturally, lead to substantial foreign exchange outflows and are less linked to productive activities compared to essential imports like crude oil, fertilizers, and technology.
- India's foreign exchange reserves fell by $38 billion due to capital outflows and high crude oil prices amid the West Asia conflict.
- Foreign Institutional Investors (FII) outflows amounted to Rs 1.97 lakh crore from January to May.
