India’s higher gold duty faces a test in tonnes, premiums and recycling

India’s increase in gold and silver import duties can help the external account if it changes how much metal the country buys abroad. A higher domestic price is only the first step. From 13 May the effective rate on standard gold and silver imports rose from 6% to 15%, with separate treatment for some other precious-metal products. The government says it wants to conserve foreign exchange amid the West Asia disruption. The policy should be judged by changes in physical net imports and the sources of domestic supply. Customs revenue, retail prices and foreign-exchange savings can move in different directions. DD News on the May customs changes · Reuters on the new import duties · CBIC basic customs duty notification

Nine points on the tax rate translates to an 8.5% change in the import price

Suppose an importer buys standard gold with a customs value of ₹100 before the relevant duty, and the world price and exchange rate stay fixed. The duty-inclusive cost rises from ₹106 to ₹115, about 8.5%. This excludes other taxes and costs and assumes the full duty applies. Local wholesale and retail prices need not rise by the same amount. Dealers can sell stocks bought under the earlier rate. Households can offer existing holdings for sale. Importers and jewellers may also absorb some of the increase in their margins where demand is weak. An import-price calculation is a benchmark for identifying those adjustments. DD News on the May customs changes · Reuters on the new import duties

Contemporaneous reporting put India’s 2025–26 gold imports at about $72 billion in value. The size of that bill makes the policy material, but a dollar value combines tonnage with the world price. If the world price rises enough, India can import fewer tonnes and still pay more dollars than before. Conversely, a decline in import value caused by a lower world price says little about whether the duty changed demand. Compare volumes and unit values and distinguish an abrupt change in arrivals from a sustained one. Stocks landed before the tax change can cover demand for a time and make the initial fall in legal imports look larger. Business Standard on FY2025–26 gold imports · Reuters on the new import duties

That distinction is visible in the prior-year comparison. The $71.98 billion figure was about 24% higher than a year earlier, and reporting on the Commerce Ministry data attributed much of the increase to high gold prices. A government seeking to reduce dollar outflows therefore has to allow for prices set outside India. It should publish the change in volume and the contribution from unit values, with a separate line for changes in purity and product mix where possible. An unchanged import bill could still represent policy-induced restraint if it would have risen with the world price in the absence of the duty. That claim needs an explicit comparison, rather than treating the bill itself as the effect. Business Standard on FY2025–26 gold imports

A second example separates revenue from the external account. Suppose legally imported gold has an aggregate customs value of $100 million at the old rate and $90 million at the new one because physical purchases fall 10% at an unchanged world price. The import bill falls by $10 million. The duty rises from the rupee equivalent of $6 million to $13.5 million, holding the exchange rate and the duty base definition fixed. These are illustrative amounts. Higher tax revenue can therefore accompany lower foreign-exchange demand. If imports are replaced with unrecorded purchases abroad, the recorded bill may fall without an equivalent reduction in the country’s underlying demand for foreign currency.

Recycling is one way the adjustment can work

Gold held by households is a large potential source of metal. When the domestic price rises relative to other uses of savings, some households may sell old jewellery, bars or coins. Recycled metal can meet part of jewellers’ demand without requiring a new import. Reuters reported that the price move prompted some domestic selling and that dealer discounts against official prices widened sharply. That is a contemporaneous observation, not a national quantity estimate. If the discount persists and recycled volumes rise through formal channels, the evidence for substitution becomes stronger. If discounts disappear after old stocks run down and demand returns, the initial change may have been mostly timing. Reuters on domestic discounts and selling

The distribution is uneven. Existing holders can receive a higher local price if they choose to sell. A household buying jewellery for a fixed date may face a higher bill and have little immediate room to delay. A jeweller financing inventory has to tie up more rupees for the same amount of metal. Larger firms may be better able to fund the difference or source recycled material. Smaller shops can face a squeeze if customers resist higher prices and suppliers want payment sooner. An exporter competing at a world price may have even less ability to pass on a domestic input premium, which is why the rules governing export-linked inputs matter separately from the headline rate. DD News on the May customs changes · Reuters on the new import duties

The government also moved on 14 May to cap duty-free gold imports for jewellery exports under advance authorisation at 100 kilograms per licence, according to Reuters. That measure has a separate purpose and a different denominator from the domestic duty. It seeks to contain the use of a concession while allowing inputs for export. If a firm can import only in smaller lots, verification may become easier but the cost of repeated approvals and financing can rise. Compare the gold bought under the concession with the value and physical content of verified exports. Tighter administration is more likely to help when it targets unexplained gaps between the two, with timely clearance for firms that meet the rules. Reuters on the advance authorisation cap · DGFT’s rules for gems and jewellery exporters

The strongest case is for temporary relief in a stressed external account

The import duty raises the relative price of a purchase that some households and firms can postpone. That makes it a faster instrument than many policies that would improve the external account over several years. It can be defensible during a short disruption if it reduces the need for other adjustments. The strongest objection is that gold demand reflects long-standing saving and consumption preferences. If households still want to acquire metal, a wider gap with foreign prices can change the route by which it arrives. A large and persistent premium can reward diversion and penalise compliant businesses. Enforcement and reporting can reduce the problem, but the cost of maintaining a wide wedge rises if the policy has little effect on final demand. DD News on the May customs changes · Reuters on domestic discounts and selling

A better assessment would distinguish purchases of newly imported metal, locally recycled material and investment products that change the form of household exposure. A switch from jewellery to a financial claim backed by newly purchased physical gold can still require imports. A switch into an investment with no additional purchase of metal has a different effect. This distinction matters if the policy objective is the net demand for foreign currency rather than the pattern of retail buying. It also explains why a rise in formal financial products is not sufficient evidence that the import measure worked. Look at what the product issuer and the rest of the market bought to provide it.

What would make the policy worth its cost

Publish gold and silver import tonnage and value alongside wholesale premiums or discounts, recycling volumes, jewellery export performance and changes in customs enforcement. Compare those figures with earlier periods that had similar global prices and seasonal demand. If physical net imports fall for several months, legal recycled supply expands and export orders hold up, the case that the higher duty bought external relief strengthens. If recorded imports fall while premiums and unrecorded supply rise and exporters lose orders, a longer-lived duty deserves more scrutiny. The policy succeeds when India buys less new metal abroad at an acceptable cost to households and businesses that use it. DD News on the May customs changes · Business Standard on FY2025–26 gold imports