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As the West Asia war crisis builds pressure on the country’s current account deficit, sources on Wednesday (May 13) said India’s foreign exchange resources must be prioritised towards essential imports such as crude oil, fertilisers, industrial raw materials, defence requirements, critical technologies and capital goods.
They said this explains the government’s decision to sharply raise customs duty on precious metals, including gold and silver.
In a major reversal of last year’s duty cuts, the government has increased customs duty on gold and silver imports from 6% to 15%, while import duty on platinum has been raised from 6.4% to 15.4%.
Consequential changes have also been made to duties on dore, coins, and related precious metal products.
The government views the move as part of a broader effort to conserve foreign exchange, manage the current account deficit (CAD), and shield the economy from external shocks at a time when crude oil prices and shipping routes remain volatile.
According to sources, the “decision reflects a preventive and forward-looking approach to external-sector management” aimed at reducing vulnerability before external pressures intensify further.
Officials believe India, as one of the world’s largest crude importers, remains particularly exposed to disruptions arising from ongoing geopolitical tensions in West Asia.
Elevated oil prices and freight disruptions could inflate the import bill, pressure inflation, and widen the CAD.
Against this backdrop, policymakers appear to have identified precious metals as a category where discretionary demand can be moderated without imposing outright restrictions.
“Rather than resorting to quantitative restrictions or more severe import-management tools, the approach relies on moderate price-based disincentives that preserve market flexibility and consumer choice,” sources said.
The government believes the move sends “a clear signal of prudent economic governance” and demonstrates that India is responding “proactively to emerging external risks through timely, measured, and targeted interventions.”
Sources said precious metals, while culturally and financially significant, remain largely “consumption- and investment-driven in nature” and involve substantial outflows of foreign exchange.
Sources said the government deliberately chose a calibrated duty hike instead of imposing quantitative restrictions such as import quotas, licensing limits, or outright curbs on precious metal imports.
According to sources, “rather than resorting to quantitative restrictions or more severe import-management tools, the approach relies on moderate price-based disincentives that preserve market flexibility and consumer choice.”
Policymakers believe such an approach allows demand moderation through market pricing mechanisms without disrupting trade flows, supply chains, or consumer access.
Sources added that quantitative restrictions are generally viewed as more distortionary and can create supply shortages, market inefficiencies, and incentives for unofficial trade channels, whereas customs duty adjustments offer a more flexible and reversible policy instrument during periods of external stress.
“The increase in customs duty on precious metals is intended to moderate avoidable import demand and ease pressure on the external account,” sources said, while stressing that the measure is “neither prohibitory nor anti-consumer in nature.”
The commentary also linked the move to Prime Minister Narendra Modi’s broader call for economic discipline amid rising global uncertainty.
“Citizens have been urged to reduce avoidable foreign expenditure, promote domestic alternatives, conserve fuel, and support national economic resilience through responsible consumption choices,” sources said.
The latest increase effectively reverses the rationalisation undertaken in the Union Budget 2024–25, when duties on gold and silver were reduced from 15% to 6%, and platinum duties were cut from 15.4% to 6.4%.
Sources, however, maintain that customs duty calibrations on precious metals have historically remained responsive to evolving macroeconomic and external-sector conditions.
The move is expected to have implications for bullion imports, jewellery demand, and the gems and jewellery sector, while markets will also monitor whether the steep increase revives concerns around smuggling and unofficial gold inflows.
Overall, sources said the duty hike is part of a wider strategy aimed at “conserving foreign exchange, protecting the current account, prioritising essential imports, and strengthening India’s economic resilience in the face of evolving global uncertainties.”
