Gold, silver import duty hiked to 15%: Experts weigh in on short-, medium- and long-term impact

For some time, gold and silver prices were showing movement based on the developments in the US-Iran war. However, both metals witnessed a dramatic jump today after the Centre raised import duties in a bid to conserve foreign exchange and support the rupee.

In the retail market, gold jumped by as much as ₹14,000 per 10 gm to over ₹1.68 lakh. Silver, meanwhile, recorded an increase of ₹20,000 per kg, surging past ₹ 3 lakh levels.

The government has raised the import duty on gold and silver from 6% to 15%.

Since nearly all of India’s gold demand and around 80% of its silver demand are met through imports, the latest hike in import duty will increase the tax burden on importers. This, in turn, will raise the landed bullion prices for banks, bullion dealers, and jewellers, leading to an immediate increase in domestic benchmark prices.

Speaking on the immediate price hike in gold and silver, Suvankar Sen, MD and CEO, Senco Gold and Diamonds said, “The impact on retail prices is usually visible almost immediately after the import duty hike becomes effective, because domestic gold pricing is linked to replacement cost rather than only the historical cost of existing inventory.”

Explaining the pricing mechanism, Sen said that even if jewellers are holding inventory imported at lower duty levels, the market generally starts pricing gold based on the cost of the next batch of imports. This is because retailers need to replenish inventory at the new higher landed cost, and bullion prices in the domestic market adjust accordingly.

That said, the extent and timing of the retail price increase can vary slightly depending on factors such as existing inventory levels, hedging positions, international gold prices and rupee-dollar movement.

Expert views on how will the latest import duty hike impact gold prices in the short to long term

In the short term, experts expect bullion prices, both gold and silver, to outperform international markets temporarily due to the higher duty premium. Inflows may be more inclined towards digital gold formats as against physical gold and gold jewellery.

Sen also noted that high prices may encourage exchange-led buying and recycling of old gold, which is already becoming a key trend in the industry.

On the medium to long-term impact, Sen said that any increase in gold and silver import duties is likely to keep domestic bullion prices elevated, although global bullion trends, currency movements and geopolitical developments will continue to influence overall pricing dynamics.

From an industry standpoint, the sector is already preparing for a prolonged phase of relatively high import duties on gold, he added.

Other experts believe that at higher price levels, there may be profit booking. Furthermore, as jewellers would reduce their purchases over time, physical premiums may tend to come down.

Kirang Gandhi, Pune-based personal finance expert held that in the long term, the move may reduce non-essential imports, help save foreign exchange, and support the rupee. But if the price gap becomes too wide, smuggling and grey-market activity may rise.