9% gold import duty hike may only offset one month of imports — Here’s why

To tackle demand amid high prices, the government made a significant move by increasing the import duty by 9%, from 6% to 15%. This includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess.

The impact on the gold price was immediate but appears temporary. The gold price in India jumped over Rs 9,000 per 10 grams, a 6% increase on May 13, despite stable international market rates. However, on May 14, the price of gold appears settled at around Rs 1,62,000, the same as the previous day’s price.

“What we are seeing in domestic prices today is a mechanical re-pricing to a new import parity, not a fundamental rally. The duty is now a fixed cost embedded in the price,” says Anindya Banerjee, Head of Commodity and Currency Research, Kotak Securities.

“From here, gold and silver in India will continue to be driven by what they have always been driven by — the international LBMA spot price, the USD/INR exchange rate, and the domestic premium or discount over import parity. The duty has done its job and become a sunk cost,” adds Banerjee.

How Effective Is the Duty Hike?

The key question is — will the import duty hike be effective enough to tame gold demand over the long term?

To understand the scale, let’s look at India’s average monthly gold import numbers. The average increased to 83 tonnes in the first two months of 2026, though the 12-month average in 2025 was about 53 tonnes, as reported by the World Gold Council.

Dr. Renisha Chainani, Head of Research at Augmont, explains how the 9% import tariff increase might only cover one month’s gold imports. “WGC data indicates that each 1% duty increase reduces consumer gold demand by roughly 6.4 tonnes — meaning the cumulative 9-percentage-point increase could suppress annual demand by approximately 57 tonnes. Indian Gold Demand might be suppressed by 57 tonnes in a year due to import duty rise from 6% to 15%, so it is safe to assume that it will offset one month’s gold imports,” says Dr. Chainani.

The Import Bill

The numbers tell a bigger story. Indian gold demand increased by 10% year-on-year to 151 tonnes during the January-March quarter, with a value surge of 99% to a record $25 billion, according to World Gold Council data. For the full year, India imported more than 800 tonnes of gold in 2024, up 5% from 761 tonnes in 2023. Even in 2025, when numbers declined, imports were still more than 700 tonnes.

Why Such a Drastic Move?

A big share of India’s dollar spending goes towards oil and gold imports. High levels of gold imports put pressure on India’s current account deficit, which is showing signs of weakening.

A surge in oil prices since the war in Iran is already depleting India’s forex reserves. According to the Reserve Bank of India, India’s foreign exchange reserves fell to $690.69 billion on May 1 from $698.49 billion — a decline of $7.7 billion from the previous week.

“With crude oil prices rising again amid geopolitical uncertainty, India faces increasing pressure on its current account deficit (CAD), foreign exchange reserves, and the rupee. Since India imports nearly 85% of its crude oil requirements, higher oil prices significantly widen the import bill and can trigger inflation, currency weakness, and foreign portfolio investor (FPI) outflows,” says Vishal Trehan, COO & India Sales (Institutional Broking & Clearing), Aikyam Capital Group.

The Indian rupee has depreciated 12% against the dollar in the last year and is slowly inching towards the 100 mark. The last fall of Rs 5 — from Rs 90 to Rs 95 — in the INR-USD exchange rate happened in just 6 months.

India’s heavy spending on oil and gold imports is putting pressure on its current account deficit (CAD). Simply put, a CAD occurs when a country pays out more money than it brings in, often indicating that it is investing more abroad than saving domestically.

Will History Repeat Itself?

The steep hike in import duty on gold and other precious metals, including silver, is a stark reminder of a situation India has faced before. “The sharp jump in the effective import duty on gold and silver, from 6% to 15%, is a blunt instrument that history tells us rarely achieves its intended purpose.

India’s appetite for precious metals is structural, not cyclical; it is woven into savings culture, festive demand, and portfolio behaviour across hundreds of millions of households. When the price of the legal channel rises this steeply, a well-established informal trade (call it grey-market or smuggled supply) simply fills the gap,” says Sachin Sawrikar, Founder and Managing Partner, Artha Bharat Investment Managers.

“We saw exactly this play out after the 2013 duty hikes, which drove an estimated surge in gold smuggling even as official import data showed a decline. The forex savings the government hopes to achieve may prove largely illusory, while consumers end up paying a premium, jewellers face margin pressure and compliance costs, and enforcement agencies are stretched further,” adds Sawrikar.

What Happens Next?

The gold price surge as a result of the import duty hike could be temporary as price movements will eventually align with international prices. Gold at around Rs 1.6 lakh per ten grams is already making it unaffordable for most Indians. The consumer behaviour seems to have shifted towards lower cartage jewellery, and the trend may continue.

PM Modi has also urged Indians to postpone gold buying by a year. Whether Indians end up buying less gold over the next 12 months remains to be seen. If Indians buy less, import volumes will fall, and the government’s move to increase import levies will prove to be effective.

Disclaimer: The views expressed by experts quoted in this article are their own and do not represent the editorial position of this publication. Gold prices and import volumes are subject to market fluctuations and policy changes. This article is for informational purposes only and should not be construed as financial or investment advice. Readers planning gold purchases or investments are strongly advised to consult a qualified financial advisor.