Gold and Silver Imports Drop Sharply Across India Following Higher Taxes and Modi's Appeal

India saw a steep drop in gold and silver imports over recent months, driven by higher import duties and an appeal from Prime Minister Narendra Modi to hold off on buying gold. According to data released by the Commerce Ministry on October 15, gold imports in September fell by 81.27 percent compared to the previous year, dropping down to 1.8 billion dollars. Silver imports also plunged by 49.11 percent to 665.1 million dollars during the same month. This marks the second straight month of heavy declines in precious metal imports. Earlier in May, the central government raised the import duty on gold and other precious metals from six percent to 15 percent to curb foreign exchange outflows.

Mutual Funds

Now, mutual fund companies are also moving to restrict lump-sum investments in Gold Exchange Traded Funds, known as Gold ETFs. While industry insiders suggest this move aims to prevent a spike in gold imports ahead of the upcoming festival season including Dussehra, Diwali, and Dhanteras, neither the Securities and Exchange Board of India nor mutual fund houses have issued any official orders regarding the restrictions. Regular monthly SIP investments and retail Gold ETF purchases remain unaffected by these changes. Global financial markets are currently facing volatility due to geopolitical tensions, leading many investors to view gold and silver as safe havens. Furthermore, the wedding season in northern India typically drives up jewellery demand, which analysts say the government is trying to control.

Context

India ranks as one of the world's largest consumers and importers of gold, relying heavily on foreign reserves to bring in the yellow metal. Lower gold imports help reduce trade deficits and ease pressure on the rupee against foreign currencies, protecting the domestic economy. However, a drop in import value does not automatically mean retail gold prices within the country will fall, as prices depend on international rates, currency exchange values, and tax structures.