Will India’s gold import tax hike trigger a slowdown in jewellery demand?

India has raised import taxes on gold and silver to 15% from 6%, stepping up efforts to curb purchases of precious metals and protect the country’s foreign exchange reserves as pressure on the rupee and the external balance intensifies.

The change took effect through a Department of Revenue notification issued under the Customs Act.

Under the revised structure, imports of gold and silver will now attract a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess, taking the effective levy to 15%.

The move had been widely flagged by market participants after Prime Minister Narendra Modi urged citizens over the weekend to postpone gold purchases for a year, reduce fuel consumption and avoid foreign travel to help conserve reserves.

Taken together, the prime minister’s remarks and the duty increase signal a broader push by the government to restrain what it sees as non-essential imports at a time of heightened strain on foreign currency resources.

What changed in import taxes

The new duty structure marks a sharp increase from the previous 6% levy and directly raises the landed cost of imported gold and silver.

For a market such as India, which imports nearly all of the gold it consumes, that is a material change for wholesalers, retailers and end-buyers alike.

The government’s objective appears straightforward: make precious-metal imports more expensive in order to moderate demand and reduce pressure on the current account.

Gold and silver occupy a distinctive place in Indian household savings and spending patterns, but from a policy perspective they are also a sizeable source of dollar demand.

That matters because any sustained increase in imports can worsen pressure on the rupee when external balances are already under strain.

By lifting duties sharply, New Delhi is trying to slow demand without resorting to more direct restrictions on trade.

Why the government is acting

The policy shift comes after a weekend appeal from Modi for Indians to delay gold buying for a year and cut back on fuel use and overseas travel.

Those comments underscored official concern that non-essential imports are draining reserves at a time when the government is trying to stabilise the currency backdrop.

Officials have signalled that imports such as precious metals can add materially to demand for dollars, particularly in periods of volatility.

That demand can weigh on the rupee and make it harder to manage external financing pressures, especially when oil prices are high and import bills are rising.

In that context, the higher duty should be seen not as an isolated tax move but as part of a wider macro response.

The government is effectively asking consumers to defer discretionary spending that relies heavily on imports, while using tariffs to reinforce that message.

Market reaction and what to watch

The equity market responded quickly.

Shares of listed jewellers including Titan, Kalyan Jewellers, Senco Gold, Sky Gold and PN Gadgil came under pressure, with some stocks falling as much as 15% as investors priced in weaker demand and higher import costs.

For the sector, the risk is twofold.

First, higher duties increase costs across the supply chain.

Second, if consumers respond to the government’s messaging by delaying purchases, jewellers may face slower sales and greater pressure on margins.

While some of the higher import cost can be passed on through prices, a more meaningful slowdown in demand would be harder for companies to absorb.

Investors will now be watching how quickly the higher levy feeds through into retail pricing and whether buying weakens in the near term.

The market will also be alert to any further policy signals, especially if pressure on reserves or the rupee worsens.

Macro context for the rupee

The broader backdrop helps explain the government’s urgency.

India has enjoyed strong economic growth over the past two decades and has attracted substantial foreign investment, but those inflows can be offset when import-related dollar demand rises sharply.

Oil is a key variable. As a major energy importer, India sees aggregate dollar demand rise when crude prices increase, because importers must sell more rupees to pay for shipments.

That dynamic can add to pressure on the currency just as policymakers are trying to protect reserves.

Inflation also remains above the Reserve Bank of India’s 4% target, which complicates the picture.

Higher inflation can keep interest rates elevated and support local assets, but it does not remove the immediate challenge created by strong import demand for dollars.

For now, the duty increase suggests the government is prioritising reserve conservation and rupee stability, even at the cost of disrupting demand in one of India’s most important consumer categories.