India’s government moved decisively late on May 12 to curb precious metals demand and ease pressure on the rupee, hiking import duty on gold and silver to 15% from the earlier 6% — a sharp 9 percentage point increase that imposed a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess on imports of both metals. The move, which came two days after Prime Minister Modi urged citizens to avoid buying gold for weddings for a year, sent domestic precious metals prices sharply higher on May 13 as the duty hike raised the effective cost of imported bullion.
On MCX, silver surged 6.46% or ₹18,029 to ₹2,97,091 per kilogram — a fresh near-term high. Gold jumped 6.12% or ₹9,390 to ₹1,62,832. Copper gained 1.08% to ₹1,405.15. Zinc rose 0.40% to ₹363.80. Meanwhile crude oil fell 0.91% or ₹88 to ₹9,635, and natural gas declined 0.37% to ₹269.90 — reflecting the global overnight oil price retreat even as the structural supply disruption remains acute.
Why did India hike gold and silver import duty so sharply?
The duty hike from 6% to 15% is the most aggressive single-step increase in India’s gold and silver import tariff in over a decade — surpassing even the crisis-period hikes of 2013 when gold import duty was raised to 10%. The move reflects the severity of the current foreign exchange pressure on India.
The government’s logic is direct. When gold and silver imports rise, India needs more US dollars to pay for them. When dollar demand rises faster than supply, the rupee depreciates. India’s rupee had already hit a fresh all-time low of 95.74 against the dollar during May 12’s session — driven by a combination of crude oil above $100 per barrel and elevated gold and silver import demand, including front-loading by dealers anticipating exactly this kind of duty hike — before closing at a record low of 95.63.
Analysts from Finrex Treasury Advisors said the duty hike could bring down precious metals demand in India — the world’s second-largest consumer — and help in curbing the current account deficit and easing rupee pressure. India’s foreign exchange reserves stood at $690.69 billion as of May 1 per RBI data — still substantial at approximately 11 months of import cover, but declining under sustained pressure from elevated crude and precious metals import bills.
The rupee picture on May 13
The rupee opened two paise higher at 95.61 on May 13, supported by the duty hike announcement. The modest recovery — from a record closing low of 95.63 — reflects the market’s cautious optimism that the duty hike will reduce precious metals import demand and thus dollar outflows, providing some structural relief to the currency. Analysts at ANZ noted that structurally weak external funding conditions mean even a small widening of the current account deficit will continue to put pressure on the rupee and foreign exchange reserves.
However, crude oil hovering near $106 per barrel — Brent dropped $1.22 or 1.1% to $106.55 in early Asian trade as investors awaited the Trump-Xi summit — continues to keep traders on edge. The rupee’s recovery is fragile as long as crude remains above $100.
The global oil picture: Crude eases but stays above $100
Brent crude futures fell to approximately $106.55 per barrel on May 13 — down 1.1% — snapping a three-day rally as investors awaited developments around the fragile Middle East ceasefire and braced for the high-stakes Trump-Xi summit in Beijing on Thursday and Friday. WTI fell similarly to $101.02 per barrel. Both benchmarks have remained largely above $100 since the US and Israel began attacks on Iran at the end of February and Tehran effectively shut the Strait of Hormuz.
Senior market analyst Priyanka Sachdeva of Phillip Nova noted that concerns over supply disruptions and uncertainty surrounding the Middle East are keeping oil prices well supported, even as traders struggle to establish a clear direction, warning that sharp swings are likely to persist and any further escalation could quickly revive strong upside momentum in both Brent and WTI.
Trump said on Tuesday he does not think he will need China’s help to end the war with Iran — a statement that dims hopes of Beijing playing a mediating role — even as hopes for a lasting peace deal faded and Tehran tightened its grip over the Strait of Hormuz. Eurasia Group said in a client note that the length of the disruption and the scale of the supply loss — already exceeding 1 billion barrels — means oil prices are likely to remain above $80 per barrel for the rest of the year.
The US inflation dimension
US consumer prices rose sharply for a second consecutive month in April, producing the largest annual increase in inflation in nearly three years — a development that bolsters expectations the Federal Reserve will keep interest rates on hold for an extended period. Capital Economics noted that the marked increase in inflation across advanced economies has yet to cause real spending to contract, but widespread declines in consumer sentiment and hiring intentions point to worse to come.
Elevated US interest rates make borrowing more expensive globally, potentially denting oil demand at the margin — one reason crude fell slightly on May 13 even as supply disruptions persist — while simultaneously strengthening the dollar and creating additional pressure on emerging market currencies including the rupee.
What the duty hike means for Indian consumers and jewellers
The 15% effective import duty on gold and silver — up from 6% — dramatically raises the landed cost of imported precious metals for Indian banks and bullion dealers. This cost passes through directly into retail physical market prices, which is why MCX gold and silver surged 6%+ on May 13. For Indian consumers, the duty hike means gold and silver jewellery will cost meaningfully more in the coming days as the higher import cost flows through the supply chain to retail showrooms.
For India’s listed jewellery companies — already down 10-12% over two sessions following PM Modi’s voluntary appeal — the duty hike adds a second layer of demand headwind. Higher retail prices will reduce volume demand, particularly in the price-sensitive mass market and among buyers who had been waiting to make purchases. The combination of a voluntary appeal and a hard duty hike creates a dual demand suppression mechanism that is structurally more powerful than either measure alone.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors are advised to consult a registered financial advisor before making any investment decisions. Business Upturn does not hold any position in the securities mentioned.