One of the simpler ways to help tackle foreign exchange reserves and CAD-related pressures in the face of global volatility is to restrict the import of precious metals
The import of gold, silver and platinum is to be viewed as non-essential in the current geopolitical situation. The negative effects of the Iran war are cascading in terms of oil and gas prices and their irregular supply from the Middle East despite the cessation of direct hostilities. Projections of India’s trade as well as current account deficits point in a negative direction.
One of the simpler ways to help tackle foreign exchange reserves and CAD-related pressures in the face of global volatility is to restrict the import of precious metals. This is not a measure easily taken considering the sentimental attachment of Indians to gold that has far more than just its financial value. They say you can put all the taxes you want on gold and still Indians would be a majority among those shopping for the metal.
The tax on imports has been raised from six per cent to 15 per cent but that could also incentivise smuggling which is something the country has been fighting for decades without great success and despite recent drop in duties. It is a rule of thumb that for every ton of smuggled gold caught, 10 tons may have already landed in India.
The appeal for austerity when the CAD is under pressure has a particular relevance. Even a 20 per cent decrease in imports of crude oil can help bridge the deficit and if people are pushed into discretionary buying or outright abstinence from gold for a while until crude oil prices cool to below the $100 mark — which could take a year or more — they would be helping the nation get through a difficult period for the economy.
Gold constitutes the second-largest import after crude oil. In the last financial year, gold imports rose 24.1 per cent from the previous year to nearly $72 billion and the crude oil bill for the year could be well upwards of $137 bn, which was the figure for 2025 imports. A measure of discipline in imports of the two major items could help lessen the burden, also by way of a rupee which will perform better against the dollar if imports come down. It is a small sacrifice for people to resists the lustre of gold for a while.
