Following an unprecedented surge in the quantity of precious metals (gold and silver) imported into India in 2025, India is currently considering increasing import duties on such precious metals, leading to renewed concerns about both the trade deficit and pressures on the rupee.
According to Reuters data, India imported a record total of $58.9 billion worth of gold during 2025 (up 1.6% compared with 2024) and $9.2 billion worth of silver (up 44% compared to 2024). A significant burden for India is that gold and silver together provided, on average, about 9% of the total value of all items imported, and India imports nearly 100% of all gold, as well as 80%+ (in value) of all silver.
Why are gold and silver complicated?
India is the world’s second-largest consumer of gold (by volume) and the largest consumer of silver, but in terms of gold and silver consumption, unlike most other global commodities, through the use of gold and silver; there is no productive (think industrial) use of those metals. Thus, generally, Indian policymakers have viewed the gold and silver consumption in this country as discretionary spending and therefore detrimental, in part, because of the strain on the trade balance and rupee.
Although silver is vital to industries like solar energy and electronics, the demand for investment has surged and blurred the line between its industrial use and the investment inflow.
With the rupee at all-time lows this year, officials are concerned that historically high imports of precious metals will only further deplete India’s foreign exchange reserves if prices continue to increase before the year 2026.
Why the markets expect an import duty increase
Given the record high prices of gold and silver, import bills are likely to become very large even if no additional volume comes in. Industry and trade representatives believe that this is creating speculation as to whether the government will increase their import duties shortly.
India has done this previously. The Indian government raised gold import taxes sharply in 2012 to stabilize a rapidly depreciating rupee. Most recently, in 2024, the government lowered their duties from 15% to 6% in an attempt to curb gold smuggling. Many traders think that the government will begin to reinstate some of these duty cuts.
The markets appear to have already priced this risk in, as gold and silver traded in India currently are priced above normal global market values.
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Why High Prices Have Not Reduced Demand
Despite an increase in gold prices of nearly 76% in 2025 (the price of gold has jumped significantly), overall demand for gold in India is still robust. There has been a significant decrease in demand for gold jewellery, with purchases beginning to decline, but investment demand for gold has risen significantly.
Investment in gold ETFs (Exchange Traded Funds) was roughly ₹429.6 billion last year, an increase of over 283% from the previous year. As a result of this increase, investment in gold has grown to be over 40% of total demand for gold. The demand for silver ETFs has also increased, which indicates that investors are increasingly viewing both metals as a safe haven due to the volatility of equity markets.
Will Increased Duties Work?
Historically, the effects have been minimal. In 2013, the Government of India raised the duty on imported gold, increasing the duty from 2% to 10%, and demand for gold was relatively unaffected. Analysts believe that a fresh increase in the duty of 4-6% will not deter individuals from purchasing gold as they have already accepted the higher price of gold.
It is more likely that higher duties will encourage smuggling or increase investment in gold ETFs as opposed to substantially reducing the number of) gold imports.
Policymakers face a difficult challenge: to achieve a balance between sustaining stable currencies and external balances while dealing with India’s long-standing cultural and economic ties to gold and silver. Prices are currently high, and investment demand is strong. While changes to import duties may provide some immediate relief, they will not provide long-term solutions.
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