Gold futures on the Multi Commodity Exchange fell 0.48% to ₹1,58,311 per 10 grams on Wednesday morning as a combination of global pressure and India-specific policy tightening weighed on domestic bullion prices. The decline comes even as the government scrambles to contain the economic damage from the Iran war — a crisis that has sent oil prices surging 50%, driven the rupee to an all-time low, and triggered the most aggressive battery of currency defence measures India has deployed in over a decade.
What India has done so far
The government more than doubled import taxes on gold and silver to approximately 15% from 6% to reduce dollar outflows, following a rare direct appeal from Prime Minister Narendra Modi to citizens to forgo gold purchases. Silver imports have been reclassified from “free” to “restricted,” meaning only shipments licensed by the Directorate General of Foreign Trade can now enter the country.
State-run refiners raised fuel prices for the second time in less than a week on Tuesday — diesel and petrol had already been hiked over 3% the previous week. The increases are calibrated to avoid a single shock, with the government opting for staggered hikes to balance inflationary and fiscal pressures simultaneously.
The Reserve Bank of India has spent approximately $32 billion in foreign exchange reserves defending the rupee since the war began. It has restricted banks from the full range of FX derivative deals with related parties and imposed a $100 crore cap on onshore open positions for lenders.
What India is considering next
The policy toolkit is not exhausted. India is weighing a reduction in taxes paid by foreign investors on Indian bonds to draw capital inflows and slow rupee depreciation. The RBI is also considering a plan for state lenders to sell foreign-currency bonds — a tool last used nearly three decades ago.
Exporters may be asked to repatriate dollar earnings immediately upon receipt rather than holding them in Exchange Earners’ Foreign Currency accounts until the end of the following month. The annual limit under the Liberalised Remittance Scheme — currently $2.5 lakh per individual for travel, education, and other permitted uses — may be temporarily cut for select categories to reduce dollar outflows. Nomura analysts flagged LRS tightening as among the most likely near-term measures in a note dated May 13.
The government is also weighing higher import duties on edible oils following a request from the domestic vegetable oil industry, as palm oil prices have risen approximately 12% since the war began.
The bigger tools if stress deepens
If the rupee comes under sustained pressure, the RBI has two heavier instruments available. It could raise the cash reserve ratio — temporarily draining liquidity from banks and raising the cost of funds — a tool used during the 2013 taper tantrum when the rupee last faced comparable stress. Former RBI Deputy Governor Michael Patra has publicly outlined a second option: tapping the US Federal Reserve’s Foreign and International Monetary Authorities repo facility by pledging part of India’s $190 billion in Treasury holdings, allowing the RBI to access dollars through overnight repo operations without incurring interest rate or counterparty risk.
NRI deposits — another 2013 playbook instrument that raised $30 billion at 3.5% — are available in principle but prohibitively expensive now, with the Fed’s target rate at 3.75% and global hedging costs elevated.
Why gold prices are caught in the middle
The domestic gold price decline reflects the global selloff driven by rising real rates and dollar strength, but the import duty hike adds a further layer of complexity for Indian buyers. Higher duties raise the landed cost of imported gold even as international prices fall — compressing margins for jewellers and making retail demand calculations harder. With the wedding season approaching and prices near record levels in rupee terms, the government is betting that duty increases will dampen import demand enough to provide measurable relief to the currency. Whether that bet holds depends heavily on how long the Iran conflict continues to keep oil elevated.
This article is for informational purposes only and does not constitute investment advice. Please consult a qualified financial advisor before making any investment decisions.