Austerity drive: Duty hike pushes up bullion prices by 7%

KOLKATA: Gold and silver prices in India surged nearly 7% each on Wednesday, after the government raised import duties on the precious metals. Gold on the Multi Commodity Exchange climbed 6.3% or Rs 9,723, to Rs 1,63,165 per 10 gm. Silver soared 6.97% or Rs 19,439 to Rs 2,95,805 per kg.

In Mumbai's spot market, gold reached Rs 1.6 lakh per 10 gm from Rs 1.51 lakh. Silver went up by Rs 22,000 to Rs 2.64 lakh per kg.

The government late Tuesday increased import duties on gold and silver to 15% from 6% with effect from May 13. The step is aimed at curbing overseas purchases of precious metals and reducing pressure on the country's foreign exchange reserves. The revised structure includes a 10% basic customs duty along with a 5% Agriculture Infrastructure and Development Cess (AIDC), lifting the effective import tax to 15%.


"Since India relies heavily on imports to meet domestic gold demand, higher duties are expected to help narrow the trade deficit and provide support to the rupee which was trading at all-time high levels," said Manav Modi, commodities analyst, Motilal Oswal Financial Services.

Geopolitical tensions also remained elevated after US President Donald Trump said the Iran war ceasefire was on "massive life support", following his rejection of Tehran's latest peace proposal, escalating fears that key shipping routes could remain disrupted for an extended period.

Renisha Chainani, research head at Augmont Gold, said World Gold Council data indicates that every 1 percentage point hike in duty reduces consumer gold demand by about 6.4 tonnes. The cumulative 9 percentage point hike could suppress annual demand by around 57 tonnes, she said.