India Doubles Import Tax on Gold & Silver to 18.4% – Implications for CAD, FX Reserves & MSMEs

On 13 May 2026 , the Government of India raised the effective tax on imported gold and silver from 9.2% to 18.4% . The move, announced through two notifications on 12 May 2026 , hikes the customs duty on precious metals from 5% to 10% and increases the AIDC from 1% to 5%. The IGST remains at 3%, bringing the overall levy to about 18.4%. Key Developments Effective tax on gold & silver imports rises to 18.4%. Customs duty increased to 10%; AIDC raised to 5%. Government cites pressure on the CAD and volatile oil markets as justification. Industry bodies warn of higher smuggling, job losses in the jewellery sector, and liquidity stress for MSME manufacturers. Important Facts • Prior to the hike, the import levy comprised 5% customs duty, 1% AIDC and 3% IGST, totalling ~9.2% on the assessable value (cost, insurance, freight + duties). • The government argues that precious‑metal imports are largely consumption‑driven, draining foreign exchange reserves that could be better allocated to essential imports such as crude oil, fertilisers and defence equipment. • Industry estimates a 15‑20% fall in gold and silver imports post‑hike. In FY 2025‑26, India imported $71.9 bn of gold (up 24% YoY) but the physical quantity fell 5% to 721 tonnes; silver imports rose 150% in value with a 42% rise in quantity. • The GJEPC warns that MSME members, who form 80% of its membership, face a liquidity crunch and could lose competitiveness. UPSC Relevance The episode illustrates the interplay of trade policy, external sector management and domestic industry concerns – core topics for GS III (Economy) . Candidates should note how fiscal tools (customs duty, cess) are used to curb import‑led pressure on the CAD and preserve FX reserves . The policy also raises questions on the effectiveness of protectionist measures, the informal economy (smuggling), and the impact on MSME employment – all of which are frequent essay topics in the UPSC mains. Way Forward • Enhance transparency of tariff notifications to align with the government's "ease of doing business" narrative. • Consider targeted measures such as export incentives for jewellery MSMEs rather than blanket duty hikes. • Strengthen monitoring mechanisms to curb smuggling while protecting legitimate consumer demand. • Periodically review the impact on the CAD and adjust policy in line with macro‑economic objectives.