India’s gold and silver imports surged to record levels last year. This has sparked significant concern among policymakers. The government finds itself with few effective tools to curb these resilient inflows.
Sky-high prices for the precious metals have done little to slow demand. The country’s gold imports rose 1.6% to $58.9 billion in 2025. Silver imports jumped a staggering 44% to $9.2 billion.
Why is the government targeting these imports? India is the world’s second-largest gold consumer and the biggest silver market. It meets almost all its gold demand through imports.
The nation relies on overseas supplies for over 80% of its silver needs. This heavy reliance comes at a steep cost to the national treasury.
India spent nearly a tenth of its total foreign exchange reserves on these metals last year. The import bill is expected to rise further in 2026 as prices continue their surge.
Rising imports have widened the trade deficit significantly. This has added substantial pressure on the rupee, which recently hit a record low.
Gold is largely used for jewellery and investment, viewed as non-essential. Silver, however, has vital industrial applications in solar power and electronics.
The government has repeatedly sought to curb gold demand by raising import duties. This strategy aims to make the metal more expensive for domestic buyers.
Why are traders speculating about a duty hike now? With prices at record highs, import values could rise sharply even if volumes stay flat.
This stokes fears of a widening trade deficit and a weaker rupee. The currency has already slid significantly against the dollar.
Trade and industry officials believe these concerns could prompt action. A duty increase on gold and silver may come in the coming weeks.
History offers a precedent. In 2012 and 2013, duties were sharply raised to stabilize a rapidly depreciating rupee.
With the currency losing ground again, traders expect a reversal of 2024’s duty cuts. Duties were cut to 6% from 15% that year to curb smuggling.
Markets are already pricing in a potential increase. Both metals are trading at a premium to global benchmarks.
Why hasn’t Indian gold demand slumped despite high prices? Jewellery accounted for over three-fourths of total demand until 2023.
International gold prices have risen 98% since the start of 2025. This has hit jewellery buying, but overall demand remains firm.
Investment demand has risen powerfully to fill the gap. Indians are increasingly buying coins and bars in the physical market.
A growing number of investors are turning to exchange-traded funds. ETF inflows jumped 283% in 2025 to a record 429.6 billion rupees.
The share of investment demand in total gold consumption rose above 40% in 2025. It is expected to increase further in 2026.
Gold and silver ETFs trade on stock exchanges like shares. They are backed by physical bars held in secure vaults.
Can a duty hike actually reduce gold demand? India has tried this before with little success. When the import tax was lifted to 10% in 2013 from 2%, demand held steady.
Domestic gold prices have soared from about 8,000 rupees per 10 grams in 2006 to around 162,000 rupees now. This massive rally failed to significantly reduce annual demand.
A fresh duty hike of 4 to 6 percentage points is unlikely to deter buyers. They absorbed a 76.5% jump in prices in 2025 alone.
Higher duties could, however, enhance investor returns and increase smuggling. Inflows into gold ETFs have been strong recently.
They are expected to remain firm as investors turn to bullion. This shift comes amid weak returns from the equity market.
A sharp price drop could weaken investment demand. Yet it might boost jewellery sales as waiting buyers return.
Why are silver imports also becoming a major concern? Silver prices have risen even faster than gold, pushing up India’s import bill.
Until last year, demand was mainly driven by rising industrial consumption. Recently, investment demand has been supporting imports.
Silver ETFs saw inflows of 234.7 billion rupees in 2025. This was up sharply from just 85.69 billion rupees a year earlier.
The growing popularity of silver ETFs suggests a trend. Imports for investment could rise further if the price rally continues.