India’s appetite for gold continues to carry a sizeable foreign exchange bill. Imports reached $17.47 billion in April–August, up 3.38% from a year earlier, even as a sharp decline in August suggested that higher duties were beginning to bite. The metal remains a policy concern months after Prime Minister Narendra Modi urged Indians to postpone gold purchases for a year to conserve foreign exchange. 

This may push the GST Council to reconsider withdrawing the integrated goods and services tax exemption on imports of gold, silver and platinum by specified banks and nominated agencies. The possible move would bring another part of the bullion import framework under scrutiny, following the government’s increase in customs levies in May.

That increase took the combined import duty on gold and silver to 15% from 6%, comprising a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess. It formed part of efforts to curb imports and ease pressure on the rupee and foreign exchange reserves.

Narendra Modi’s appeal addressed the demand side of that equation. Against the backdrop of the West Asia conflict and rising energy costs, he asked households to defer gold buying rather than add to the country’s demand for dollars. A review of import-stage IGST relief would address a different point in the chain: the funding required by banks and agencies bringing bullion into India.

The exemption was born of a different concern. In October 2017, the GST Council was told that smaller jewellery exporters struggled to obtain gold because nominated agencies were reluctant to undertake the associated paperwork. Officials also highlighted the financial burden of paying IGST upfront when gold prices changed daily but customs valuations were fixed for 15 days.

The resulting arrangement allowed eligible banks and public-sector agencies to import gold without paying IGST at customs clearance, with tax collected on subsequent supply. It shifted the collection point rather than making all gold transactions tax-free. The framework was extended to silver and platinum in 2019 following an Export Committee recommendation.

The practical importance of the relief became apparent earlier this year. Reuters reported in May that banks resumed gold and silver imports after a halt lasting more than a month, agreeing to pay 3% IGST to release shipments. Customs authorities had begun demanding the tax from April 1 while banks awaited an exemption order, the release of which was delayed considerably.

A formal withdrawal would require affected importers to fund the tax at clearance, alongside customs duties. Its ultimate cost would depend on their eligibility for input tax credit and how quickly that credit could be used. For an importer entitled to full credit, the immediate burden could fall primarily on working capital rather than translate into an equivalent permanent tax cost.

That distinction will matter if the Council takes up the proposal. Higher customs duties raise the cost of importing the metal; removing IGST relief can also raise the cost of financing its passage into the domestic market. The question is how much additional restraint that would deliver—and how much funding pressure it would place on the supply chain.