Will Import Duty Hike On Gold, Silver Curb Rupee Depreciation? What Analyst Says

Added: 2026-05-14

[00:00:00]Gaurav Gupta, the chief economist at IDFC First Bank to take stock of even the rupee movement and how the government has come up with a customs duty hike in gold and silver, which should be impacting the foreign outflow of funds for India and therefore probably stabilizing rupee. Gaurav, good to have you on NDTV Profit. How do you see this move by the government?

[00:00:26]Uh it was required is also expected that they will do something on the gold front. Among all the imports, I mean that's the one which will it is the least productive in a way, but yes, the gold sector does get adversely impacted. It is a labor intensive sector, but still I mean it will be required uh um measure. For example, in FI 20 6, the major pressure on the CAD was due to gold imports. Overall, FI 26 CAD was very small at 0.9% of GDP because we had good services surplus. We had good remittances inflows. So, that balanced the pickup that we actually saw in the gold imports. How effective this is in terms of reducing the volume of imports is yet to be seen because gold, at least the volume tends to be less price sensitive. In FI 26, if you look at it, we saw a 50% more than a 50% rise in prices and the volume of gold imports contracted by only 10%. So, there will be some incremental reduction in gold import volumes, but it may not be enough because right now what what is happening in FI 27 is because the West Asia crisis you have elevated crude prices, which will on its own take the current account deficit to around 2 2.4% of GDP, which is close to a hundred billion dollar current account deficit. Now, in the past a 2% current account or 2 2.4% current account deficit is not a big issue, but unfortunately it's coming at a time when the capital account has been very weak for the last few years since FY25 onwards. So, I think we do expect further measures and especially for the capital account, the current account when it before the crisis before the West Asia crisis struck, current account was never the issue.

[00:02:17]Now current account is beginning to widen because the crude aspect, but we will need measures on the capital account to get capital inflows which will be very very essential. So, we do expect some measures to attract capital inflows.

[00:02:31]Right. So, more measures are required, but Gaura, there have been a consistent, you know, impact on rupee because of the global uncertainty, but also the government and the RBI has been coming up with like stopping treasury speculation by the banks and now cut curtailing the import of gold. What has really not worked for rupee at all because after a little bit of softening, but after that it really researched back to the lowest levels record levels that it's trading at.

[00:03:05]What's your view on overall momentum and what will really arrest this fall?

[00:03:12]I think for the last couple of years FY25 onwards, we've seen a slowdown in FPI inflows. This is a reflection that investors look at our equity market as slightly as slightly overvalued. But this is getting corrected because the markets have corrected. Moreover, with the with the 11% depreciation in the INR in FY26, in dollar terms the equity markets have actually become less overvalued. So, the expectation was that we should have seen a pickup in FPI inflows, but it but then we got a little unlucky with the West Asia crisis just triggered risk off sentiments. We've seen $15 billion dollar in the month of March triggered by this cough and that we are seeing continued FPI outflows in April as well as May. FDI India actually did attract awesome clothes but what is happening is whatever we attracted we are losing in terms of repatriation of profit booking by foreign investors and also Indian companies investing abroad.

[00:04:13]So, we will need to get some extraordinary measures to get inflows if it's not in the form of FPI FDI we need to be some measures to attract debt inflows.

[00:04:24]Because the the input cover which is basically how many months of imports does your FX reserves buy you is currently around 9 months. We calculate import cover as a sum of reserves less RBI forward book. By the end of March 2027 it can reduce to around 7 and a half months. So that comfort that the FX cover gives us can reduce in long run of crisis. Right. I would say the most critical thing is to get some inflows by coming up with certain incentive schemes and this could be in form of debt inflows. Right. So Gaura, my final question to you and I request a quick answer. What is the in-house penciling in of the levels of rupee if there are no big measures, more measures after gold taken by the government or the RBI?

[00:05:18]So our base case expectation is that there there will be measures and that has been our base case for a while now.

[00:05:24]So based on that we were expecting the INR to stabilize around 96 96 and a half levels. But if no measures are taken which we do not expect that will be an extreme case. In that case then the depreciation anything easily cross 97 level.

[00:05:40]If there are no measures taken because you have to understand it's the the pick up in the crude oil imports which is honestly out of our control.

[00:05:49]So, base case is there should be measures and that should temper the pace of depreciation. If there are no measures, it'll be around 90 and easily cross 97.

[00:05:59]>> to 96 and 1/2 rupees per US dollar. Already rupee at record low levels. Goara, thank you so much for your perspective on rupee as well as many other macro aspects. Thank you.