India Sharply Raises Gold and Silver Import Tariffs to Defend the Rupee Exchange Rate

To defend the rupee exchange rate, replenish foreign exchange reserves, and cope with losses caused by the Middle East war, the Indian government has sharply raised import tariffs on gold and silver, more than doubling their tax rates.

According to two official orders, the Indian government has increased the import duty on gold and silver from the original 6% to approximately 15%, including a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess. The core purpose of this tariff hike is to curb gold demand in India, the world’s second-largest gold market, thereby reducing foreign exchange outflows and supporting the rupee’s trend.

Earlier, Indian Prime Minister Narendra Modi made a rare appeal on the weekend, urging people to give up buying gold and avoid unnecessary foreign travel to support the rupee exchange rate. As the world’s third-largest oil importer, India has suffered a severe inflationary shock due to the disruption of energy supplies in the Persian Gulf, resulting in significantly increased economic pressure.

Gold is India’s second-largest import commodity after crude oil. A large number of gold imports have led to continuous foreign exchange outflows, directly pushing the rupee exchange rate to a historic low and forcing the Reserve Bank of India (RBI) to intervene. It is worth noting that gold occupies an important position in Indian culture and is widely used in savings, weddings and various religious festivals. Almost all of India’s gold demand relies on imports, with imports reaching as high as 710 tons last year. Although gold prices have fallen due to inflation concerns since the outbreak of the Iran war, the value of this precious metal has more than doubled in the past few years.

To support the rupee, the Reserve Bank of India has been continuously adjusting monetary policy. Data show that as of May 1, India’s foreign exchange reserves have dropped to 690.7 billion US dollars, the lowest level in more than a month, which can only cover 10 to 11 months of import demand. However, on Wednesday, the rupee remained stable in domestic trading in India.

In addition to raising import tariffs on gold and silver, the Reserve Bank of India has also taken a number of supporting measures, such as limiting banks’ daily foreign exchange open positions to 100 million US dollars, to curb speculative activities in the foreign exchange market. At present, the New Delhi authorities are still weighing other emergency measures, including raising fuel prices and restricting imports of non-essential goods such as electronic products, to further ease foreign exchange pressure.

After the news of the tariff hike was announced, the stock prices of Indian jewelers fell sharply. The stock price of Titan Co. Ltd., the country’s largest jeweler, fell 1.5% on the day, after a cumulative decline of more than 10% in the previous two trading days; the stock price of Kalyan Jewellers India Ltd. fell as much as 5.9%.

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