The higher duties could dampen demand in the world’s second-largest consumer of precious metals, although they may help narrow India’s trade deficit and support the rupee, one ​of Asia’s worst-performing currencies.

However, industry officials warned that higher import taxes could revive smuggling, which ​had eased after India cut tariffs in mid-2024.

The government has imposed a ⁠10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC) on gold and ​silver imports, taking the effective import tax to 15% from 6%.

“As expected, the government has raised ​duties to curb the current account deficit.

However, this could affect demand, as gold and silver prices were already elevated,“ said Surendra Mehta, national secretary at the India Bullion and Jewellers Association.

Prime Minister Narendra Modi on ​Sunday urged people to avoid gold purchases for a year to help protect foreign exchange ​reserves. India meets almost all of its gold consumption through imports.

Gold demand, particularly for investment purposes, has risen ‌in ⁠India amid a recent rally in prices and negative returns from equities over the past year.

Inflows into India’s gold exchange-traded funds (ETFs) surged 186% year-on-year in the March quarter to a record 20 metric tons, the World Gold Council said last month.

India has been trying to curb gold imports ​in recent weeks and ​began levying a ⁠3% integrated goods and services tax (IGST) on gold and silver imports, prompting banks to halt imports for more than a month.

As a result, April imports fell ​to a near 30-year low. Banks have since resumed imports after paying ​the 3% IGST, ⁠but imports are now likely to fall again following the increase in import duties, bullion dealers said.

“Grey markets are likely to become active, as the incentives to bring in gold illegally are ⁠high.

At ​current price levels, smugglers could make significant profits,“ said ​a Mumbai-based bullion dealer at a private bank, who declined to be named as he was not authorised to speak ​to the media.