India Raises Gold Import Tariff from 6% to 15%

The Indian government raised its gold import tariff to 15% effective May 13. Gold jewelry is essential for celebrations in India, leading to strong demand. However, India relies heavily on imports for its gold, a significant factor contributing to its widening trade deficit. The market widely believes the tariff increase is a reluctant measure taken by India to protect its currency.

The gold import tariff, previously 6%, has been raised to 15%. The tariff on silver has also been increased.

Data from the World Gold Council (WGC) shows that India ranks second globally in gold demand, after China. Given India’s heavy reliance on imports, this move aims to improve its trade balance by raising import tariffs. On May 10, Prime Minister Modi announced a one-year suspension of gold purchases.

On May 13, the Indian rupee fell to a record low of 95.5-95.9 rupees per US dollar. In April, the Reserve Bank of India imposed restrictions on derivatives trading, considered one of the reasons for the rupee’s depreciation, and relevant departments subsequently introduced a series of measures to protect the Indian currency. In energy-scarce India, currency depreciation can easily trigger import-driven inflation.

A market economist at Mizuho Bank in Japan believes that “for the rupee to truly bottom out and rebound, stable oil prices and the return of funds from overseas investors are essential. Raising import tariffs may have limited effect.”