India has pushed up its import tariffs on gold, and silver in a fairly strategic way to help hold the depreciating rupee steady and, at the same time, shield the nation’s foreign currency reserves a bit more. These reserves are monitored closely by the Reserve Bank of India. Lately they’ve been taking a lot of pressure, mainly because the war in the Middle East is still ongoing and, because of that, the Strait of Hormuz has been shut or effectively closed. 

India is also the world’s third-largest oil importer, so it’s getting hit pretty hard by the energy supply crunch that followed. With the price of petroleum rising fast, India’s import spending has gone up a lot, and that has become a major burden on the country’s balance of payments. People in the Department of Economic Affairs, and the policymakers there, have had to deal with the fiscal ripple effects as higher crude prices could spill into wider economic stability concerns. 

On May 10, while speaking about the disruptions to supply, Prime Minister Narendra Modi asked the public to cut back on petrol and diesel usage. The Prime Minister’s Office has repeatedly stressed fuel conservation as a key measure, as in a necessary, practical step to get through the current global supply chain shocks.

Curbing Gold Demand to Retain Dollars

Gold is still India’s second-largest import item, right after crude oil. It’s deeply tied into the culture, kind of like a steady sign of wealth and prosperity , and people end up buying it in massive amounts around festivals as well as weddings. But, since these gold imports get paid for using US dollars, buyers have to either turn rupees into dollars or eat into the country’s own dollar reserves to complete the purchase. This situation, in turn, keeps pushing the Indian currency weaker versus the dollar.

To put a firmer brake on this outflow , the government put out two official orders late on May 12. The change is pretty big, it roughly more than doubled the import taxes on gold and silver, moving from the existing 6 percent to about 15 percent. These necessary tariff updates are under the Ministry of Finance, with the goal of curbing non-essential imports during the ongoing crisis. 

This sharp shift also echoes recent remarks from the Prime Minister, who asked people in a direct way to avoid buying gold for a whole year. Now the Central Board of Indirect Taxes and Customs is applying the new 15 percent tariff, with the hope that this heavy-duty increase will discourage local demand, protect foreign reserves, and give some much-needed support to the rupee that keeps sliding.