The Indian government has reportedly increased the import tariff on gold and silver to 15 per cent, up from the previous 6 per cent. This significant hike, comprising a 10 per cent basic customs duty and a 5 per cent Agriculture Infrastructure and Development Cess (AIDC), is a strategic move to temper overseas purchases and alleviate pressure on the nation's foreign exchange reserves.
Jewellery Stocks Brace for Impact
The immediate aftermath of this policy change is expected to be felt across the jewellery sector. Key players such as Titan Company Ltd, Kalyan Jewellers India Ltd, Senco Gold Ltd, Thangamayil Jewellery Ltd, PN Gadgil Jewellers Ltd, Tribhovandas Bhimji Zaveri Ltd, and PC Jeweller Ltd are anticipated to see their stocks open in the red. Analysts suggest the higher duties will likely dampen demand in India, which stands as the world's second-largest consumer of precious metals.
"The move comes after Prime Minister Narendra Modi’s earlier this week urged households to avoid buying gold jewellery for one year, signaling a reduced policy appetite for further worsening of twin deficits."
This development follows Prime Minister Narendra Modi's recent appeal to households to refrain from purchasing gold jewellery for a year. This messaging is reminiscent of measures taken during FY12-13, when the government and the Reserve Bank of India implemented various restrictions to control gold imports and safeguard India’s external balances.
Historical Context and Economic Rationale
During FY12 and FY13, India grappled with severe Current Account Deficit (CAD) stress as gold imports surged past $50 billion annually, leading to a sharp depreciation of the rupee. Policymakers at the time, including then Finance Minister P. Chidambaram, publicly encouraged reduced gold purchases before enacting a series of policy interventions.
While the increased duties are likely to curb demand for gold and silver, potentially affecting the jewellery industry, the measure is also viewed as a support mechanism for the Indian rupee, which has been one of Asia's worst-performing currencies. Nomura had previously indicated that the government might disincentivize non-essential imports like gold, suggesting a potential hike in customs duty as a viable option.