Gold and silver: Why India may weigh higher import duties as record inflows pressure rupee, trade deficit

India's gold and silver imports reached unprecedented levels in 2025, raising alarm among policymakers concerned about the country’s widening trade deficit and mounting pressure on the rupee. According to a report in Reuters, the government may be now exploring the possibility of increasing import duties as one of the few available tools to curb these resilient inflows, which have persisted despite significant price hikes. Industry experts note that the effectiveness of such measures remains limited, given the robust investment demand and India’s reliance on overseas supplies for over 80% of its silver needs and nearly all of its gold demand.

On Wednesday, gold and silver are shattering records amid a sharp slide in the US dollar and growing policy uncertainty in Washington. Gold climbed to a fresh all-time high of $5,258 an ounce on Wednesday, rising over 3%, while silver jumped 8.5% to $113.6. In India, MCX gold touched Rs 1,62,500, and silver breached the psychological Rs 4-lakh mark in Hyderabad, surging Rs 1,44,000 in just 28 days.

India’s gold and silver import bills climbed to record highs in calendar year 2025, largely driven by a sharp surge in global prices rather than higher volumes. Gold imports were valued at an all-time high of $58.8 billion, while silver imports touched $9.2 billion. Together, the two precious metals accounted for about 9% of India’s total import bill of $750 billion, unchanged from the previous year. Prices were the dominant factor behind the spike. Gold prices rose nearly 76% in 2025, while silver prices more than tripled during the year.

Gold and silver market

India stands as the world's second-largest gold consumer and the largest silver market, sourcing almost the entire volume of these precious metals through imports. In 2025, nearly a tenth of India’s total foreign exchange reserves were allocated to gold and silver imports. The expectation is that the import bill will climb further in 2026, as prices for gold and silver continue to soar. This situation has led to a pronounced widening of the trade deficit, with the rupee reaching historic lows in January. Unlike silver, which finds significant use in industrial sectors such as solar energy and electronics, gold demand is driven primarily by jewellery and investment purchases, which the government regards as non-essential.

The rationale behind targeting gold and silver imports involves concerns about currency stability and the balance of payments. Despite a 76.5% increase in domestic gold prices in 2025, demand has not shown a significant decline. Current gold prices in India have climbed from about 8,000 rupees per 10 grams in 2006 to approximately 162,000 rupees. Even a projected duty hike of 4 to 6 percentage points is considered unlikely to deter most buyers, who continue to absorb higher costs, indicating the limited impact of previous duty increases on annual demand.

Surging ETFs 

Rising investor interest in exchange-traded funds (ETFs) has also contributed to sustained demand for precious metals. In 2025, gold ETF inflows jumped by 283% year-on-year to a record 429.6 billion rupees ($4.69 billion), pushing the share of investment demand in India’s total gold consumption above 40%. Silver ETFs followed a similar trend, with inflows rising to 234.7 billion rupees, up from 85.69 billion rupees in 2024. Such investment activity has offset declines in jewellery consumption, fuelling further imports and intensifying official concerns over the country’s external position.

Silver imports, which have traditionally been linked to industrial usage, are increasingly being driven by investment demand. The faster increase in silver prices compared to gold has further inflated India’s import bill. Analysts suggest that should the price rally continue, investment-oriented imports could rise further, contributing to persistent trade imbalances. Policymakers are watching these trends closely, given that the volume and value of silver imports have a direct impact on the nation’s foreign exchange reserves.

In the past

Historical precedent shows that raising import duties has had little success in curbing gold demand. When New Delhi raised the import tax on gold from 2% to 10% in August 2013, demand remained steady. Policymakers thus face the challenge of balancing macroeconomic stability with the persistent cultural and investment attractions of gold and silver. There are concerns that any hike in duties might simply increase smuggling or push more investment into ETFs, rather than meaningfully reducing overall inflows.

Trade and industry officials have noted growing speculation about changes to import duties. Trade and industry officials say these concerns could prompt the government to raise import duties on gold and silver in the coming weeks.

The market has already begun pricing in a possible increase, with gold and silver trading at a premium to global benchmarks. As noted in the context, “traders speculate a new hike may be coming in coming weeks to reverse duty cuts made in 2024.” In that year, the government reduced import duties from 15% to 6% as part of efforts to address smuggling. Now, with the rupee under renewed pressure, officials and market participants are closely monitoring the government’s next move on precious metals trade policy.