In a recent development, the Indian government has hiked import duty on gold and silver, along with the Agriculture Infrastructure and Development Cess (AIDC), to 15% and 5% respectively. This move comes in the wake of Prime Minister Narendra Modi's call for austerity measures and the ongoing geopolitical tensions in West Asia. The government's decision aims to secure foreign exchange reserves and stabilize the capital account, which has been under pressure due to the war and rising oil prices. The rupee has weakened significantly against the US dollar, falling by 11% over the past year and 5% since the war began. This has led to a $38 billion depletion in forex reserves in just two months. The government's focus on reducing gold imports is part of a broader strategy to manage the external sector and prevent further rupee depreciation. The import duty hike is expected to reduce the outflow of foreign exchange and stabilize the rupee. Additionally, the government is considering measures to attract foreign investment inflows, including a potential reduction in withholding tax on government bonds. This move could help India secure foreign capital and further stabilize the capital account. The decision to hike import duty on gold and silver is a significant step in India's efforts to manage its external sector and ensure economic stability in the face of global challenges.
