Hike in Import Duty on Gold and Silver

Prime Minister Narendra Modi twice urged the nation to practice restraint and frugality in consumer matters. He emphasized the need to stop buying gold for at least a year. It was thought that the central government would likely not touch the customs duty on gold and silver, limiting itself to simply appealing to avoid buying gold. However, the Modi government, determined to prevent the country’s currency from depreciating and to reduce the pressure of payments on its foreign exchange reserves, abruptly increased gold and silver imports by 15 percent on Wednesday. The basic customs duty on gold was also doubled to 10 percent, while the Agricultural Infrastructure and Development Cess was increased from 1 percent to 5 percent. The objective is to make gold and silver imports more expensive, reduce their purchases, and conserve our foreign exchange reserves. With the increase in import duty, gold rose by Rs. 9,000 per ten grams, while silver became more expensive by Rs. 22,500 per kilogram. The rupee suddenly fell to a low of 95.80 against the dollar and then closed at 95.67. While we were anticipating the closure of bullion markets, there was a panic rush of consumers to these markets. People prioritized buying gold and silver before the imposition of heavy taxes. Experts say this is only a temporary rush and people will eventually reduce their purchases. Remember, 99 percent of India’s gold consumption is imported from abroad and paid for in foreign currency. This increases both our budget deficit and current account deficit. As a result, the objective we wanted to prevent currency depreciation and avoid inflation caused by indiscriminate imports appears unachievable at this time. However, the foresight with which these steps have been taken will have an impact on the Indian economy sooner or later. Thus, if the pressure on our foreign exchange reserves is reduced, we can use that foreign currency to purchase crude oil and fertilizers, preventing our economy from derailing.