India's Gold Demand Slows Amid Tightened Trade Regulations

India's Gold Imports Plummet Amid New Restrictions

India's gold imports have slowed to a trickle as the country's banks and bullion traders grapple with the impact of new restrictions aimed at shoring up a weak rupee battered by the Middle East war. The increased import duty and curb on volumes have strained gold flows into the world's second biggest bullion consumer.

Domestic prices do not currently reflect the additional costs as some speculators offload their existing stockpiles into the marketplace. However, immediate demand is likely to stay low, according to analysts and traders. The duty increase dwarfs a 4 to 6% increase in local prices, making it not currently viable to import and sell. The gap between the import cost and local prices will reduce over time, said Sunil Kashyap, managing director of FinMet Pte Ltd.

India Doubles Gold and Silver Tariffs to 15%

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India, the world's third-largest oil importer, more than doubled gold and silver tariffs to 15% on Wednesday, as part of a swathe of austerity measures to cushion the economy from the inflationary shock caused by energy disruptions in the Persian Gulf. The nation further tightened rules on Thursday, requiring bullion imports by jewelers and manufacturers under tax-exempted status to be capped to a maximum of 100 kilograms per license. Subsequent imports would be issued only after 50% is exported.

Six traders and dealers told Bloomberg that they are either pausing imports or not receiving fresh orders. They asked to remain anonymous as they are not authorized to speak to the media. A spokesperson for the trade ministry did not immediately reply to a request for comment.

Impact on Gold Imports

While banks are still able to import gold, the volume depends on the end-customer demand, which is subdued, said Kashyap. Investment demand, digital gold, and ETFs will absorb displaced physical volumes, maintaining India's aggregate gold consumption trajectory above 700 tons annually, according to Renisha Chainani, head of research at Mumbai-based gold trading platform Augmont Enterprises Ltd.

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The curbs followed weeks-long import delays for banks and refineries due to administrative bottlenecks. Then came Prime Minister Narendra Modi's patriotic plea to Indians to avoid buying gold, as well as save fuel by cutting unnecessary travel and working from home.

India meets almost all its gold demand through imports, with 710 tons coming in last year. Bullion is one of the biggest imported items into India, and is central to the country's economic and cultural life. Many Indians favor it for savings, and it's seen as an auspicious purchase for weddings and during festivals.