India has raised basic import duty on gold to 12.5 per cent from 7.5 per cent, according to a government notice dated June 30. This step has been taken to reduce influx of gold into the world’s second-largest consumer of the precious metal, after India’s ballooning trade deficit pushed the Rupee to a record low. This is a reversal of last year’s Union Budget proposals, where Finance Minister Nirmala Sitharaman had announced cut in customs duty on gold to 7.5% from 12.5%. That time total levy on gold was at 10.75%, including cess, social welfare surcharge and GST.

Now with 5 per cent increase in import duty, the total levy on gold would stand at 15.75 per cent. India fufills most of its gold demand through imports, which were putting pressure on the rupee, which hit a record low earlier this week. Analysts say that this move will make gold more expensive at domestic levels and consumers will have to pay higher prices. “The government has taken this step to curb the import and maintain balance in import-export basket,” Anuj Gupta, Vice President, IIFL Securities told FinancialExpress.com.

India’s gold purchases had been picking up in the past year after buying slumped during the pandemic and the country had imported the most gold in a decade in 2021, according to the World Gold Council. “This will make gold more expensive at domestic levels and consumer will have to pay higher prices,” Bhavik Patel, Commodity & Currency analyst, Tradebulls Securities, told FinancialExpress.com.

Patel added that the move by the government is to compensate for falling income from petroleum taxes and also discourage gold import which increases US dollar demand ultimately weakening Indian rupee. “India heavily imports crude and gold which saps foreign reserves and the government is trying to encourage consumers to invest in gold bonds, ETFs instead of physical gold,” he added. Indians consider gold to be auspicious and a store of value, and the country relies entirely on imports to meet demand.